Events:

According to the company's three-quarter report for 2023, the company achieved operating income of 1.417 billion yuan in the first three quarters, an increase of 21.09% over the same period last year, a net profit of 249 million yuan, an increase of 46.83% over the same period last year, and a net profit of 243 million yuan, an increase of 48.24% over the same period last year. The performance growth rate is basically the same as the company's previous announcement of operating data for January-August, which is in line with expectations.

Product structure optimization, profitability improvement:

According to the three quarterly reports, the company's performance growth is mainly due to the increase in revenue and the optimization of product structure. The hot water circulation shield pump, the core product of the company's household shielding pump, is an important part of gas wall-mounted furnace and air source heat pump. The products are mainly divided into ordinary pumps and energy-saving pumps, in which energy-saving pumps, as products with lower energy consumption, are mainly used in overseas markets. In the heat pump scenario, the "double carbon" promotion of heat pump policy overseas, especially in Europe, is relatively definite. For example, the heating bill passed by the German Bundestag on September 9 requires that each newly installed heating system should be powered by at least 65% of renewable energy (using heat pumps or biomass boilers). The bill is scheduled to take effect in early 2024. Overseas heat pump demand continues to grow. According to the company's semi-annual report, China's heat pump exports grew by more than 20% in the first half of this year. In the wall-mounted furnace scene, according to the company announcement, the European wall-mounted furnace stock market is huge, about 140 million units, there is a need to replace ordinary pumps with lower energy consumption and higher prices. Driven by the two scenarios, the company's sales of energy-saving pump products continue to grow, while with the increase in the proportion of higher-priced energy-saving pump products, the company's product structure is constantly optimized and profitability is improved. The company's gross profit margin in the first three quarters was 32.77%, up 4.94 pct from the same period last year; net profit was 17.42%; and 2.92pct was higher than the same period last year.

New capacity will be put into production soon, so we are optimistic about the medium-and long-term growth potential of industrial pumps and liquid-cooled pumps:

In the aspect of industrial shielding pump, there are some barriers in the industry because of its high manufacturing technology and process requirements, and high customization requirements. At present, the market is still occupied by foreign brands, and there is a broad space for domestic alternatives in chemical, nuclear power, aerospace and other industrial processes. In addition, according to the company's semi-annual report, shielding technology has great application potential in civil batch market, such as IDC temperature control and rail interchange cooling system. The company has a significant competitive advantage in technology accumulation and product reserve, and its market share in the field of traditional industrial shielded pumps is expected to continue to increase. At the same time, the shielded gear pump project promoted with Huawei and ZTE in the field of IDC temperature control is expected to contribute to a new growth direction. In terms of liquid cooling pumps, the company's products are mainly used in fuel cell vehicles, power battery vehicles, wind power and other fields, the industry is in the early stage of development, the market absolute volume is small but the growth rate is fast.

In addition, according to the company's announcement, the company's new plant is expected to be put into production before February 15, 2024, and its capacity will expand to 8 million units per year. After the expansion of the new capacity, the old plant will focus on the production of industrial shielded pumps and liquid-cooled pumps, and the capacity limit is expected to be broken.

Investment advice:

We estimate that the company's income from 2023 to 2025 will be 2.019 billion yuan, 2.396 billion yuan and 2.707 billion yuan respectively, with a growth rate of 20.3%, 18.7% and 13% respectively, and its net profit will be 310 million yuan, 378 million yuan and 442 million yuan respectively, with a growth rate of 18.6%, 21.5% and 17.2% respectively. Maintain the investment rating of Buy-A with an 18-fold PE,6 monthly target price of 33.48 yuan in 2023.

Risk tips: lower-than-expected demand, increased competition in the industry, rising prices of raw materials.