On October 27th, the company released its report for the third quarter of 2023, showing that its operating income reached 813 million yuan in the first three quarters, an increase of 4.20% over the same period last year. The net profit of returning to the mother was 128 million yuan, an increase of 24.94% over the same period last year. Realized deduction of non-return net profit of 86 million yuan, an increase of 3.13% over the same period last year; operating income of 310 million yuan in the third quarter, a decrease of 0.64% and an increase of 10.07% over the same period last year; net profit of 55 million yuan, an increase of 16.72% over the same period last year; and net profit of 38 million yuan, a decrease of 12.72% over the same period last year.

Comments:

The operating situation increased steadily in the third quarter, and profitability improved month-on-month. The company's operating income in the third quarter was basically in line with expectations, rising to a certain extent compared with the second quarter, with a month-on-month growth rate of 10.07%, mainly affected by the weak recovery of downstream consumer demand; but the company actively laid out new application areas, such as vision correction drive system, lawn mowing robot walking actuator drive system, swimming pool cleaning robot drive system, etc., have strong growth potential. In terms of profitability, the return on net assets was 4.28% in the first three quarters of 2023, and the gross profit margin reached 30.04% in the third quarter, an increase of 1.27pct from 28.77% in the second quarter.

Focus on the field of micro-transmission and micro-drive, the competitive advantage is significant. The micro-transmission and micro-drive system produced by the company can be widely used in automotive electronics, intelligent medical care, consumer electronics, industrial equipment, smart home and other fields. In terms of automotive electronics, the company actively seizes the development opportunity and has many years of cooperation with Bosch, BYD, Great Wall and other major domestic automotive industry customers, and has made progress in cooperation. Precision parts, transmission systems, micro-drive products have been widely recognized. In the aspect of smart medicine, the company actively connects with domestic and foreign head medical device enterprises, constantly enriches the product line, develops the market, and promotes the use of stapler, micropump and other products. In the aspect of smart home, the company has put forward high-quality industry solutions according to the needs of customers, and the products such as floor washer peristaltic water pump and swimming pool robot drive system have been successfully trial-produced. The company also complies with the market trend, increases the product research and development investment in artificial intelligence and other industries, and applies the micro transmission system to the AR/VR field, such as pupil distance adjustment drive system, head automatic loosening device, etc., with great potential for growth.

Actively promote business strategic layout and optimize capacity distribution. The company is gradually improving the talent recruitment and production capacity construction of Dongguan Zhaowei Mechanical and Electrical Industrial Park, while increasing investment in the construction of Suzhou Zhaowei Industrial Park, which will further expand production and supply capacity, improve automation level and operational efficiency.

Cover for the first time, giving a "buy" rating. It is optimistic that the recovery of downstream demand of the company will lead to the continuous improvement of the company's business situation, as well as the volume of new products in the field of micro-transmission. It is estimated that the operating income of the company from 2023 to 2025 will be 1.79 million yuan, 1.618 billion yuan, respectively, and the net profit of returning to the mother will be 1.75 million yuan, respectively, and the corresponding PE will be 40.65 times that of 57.08 trillion.

Risk hint: the progress of new product development is not as expected, and the recovery of downstream terminal demand is not as expected.