Heat pump controllers are scarce overseas. The company specializes in heat pump-related controllers, tied to domestic and foreign compressor leading direct sales. The downstream covers the three fields of HVAC/R (HVAC and refrigeration equipment), new energy vehicle heat management, and industrial servo control. The company has been deeply involved overseas for 14 years, with overseas revenue accounting for 34% in '22. In 2014, it established a joint venture with Emerson to establish Rujing Emerson. With its product strength and channel cooperation with Emerson, it has become a core supplier to leading overseas heat pump manufacturers. Revenue/return CAGR for 20-22 = 37%/182%. Benefiting from heat pumping trends, performance has entered a period of rapid growth.

The medium- to long-term dimensions of heat pumps continue to permeate HVAC/R equipment (HVAC/R). The company is ranked as a leader in heat pump compressors at home and abroad, and its performance is flexible. Since heat pumps have characteristics such as high energy efficiency and environmental protection, countries have accelerated policy support under the energy transition. European penetration has accelerated, European heat pump giant Bosch and other manufacturers have implemented plans to expand production, and the US is just beginning to infiltrate under policy drive. The company is a leader in heat pump compressor drive control components. The top five customers in the first 22 years accounted for 65%, all of which were HVAC/R leading customers, such as Emerson, Bosch, and Ariston, etc., and accounted for a high share. Although the company is affected by downstream depots in the short term, it is expected that it will fully benefit from heat pump industry trends in the medium to long term. At the same time, products are expected to move from household heat pumps to commercial use, and the market extends from Europe to the US, with great potential for growth. Commercial air conditioners and household air conditioners are relatively stable. Commercial use benefits from the global trend of frequency conversion, and the growth rate is expected to be faster than household use.

The trend of heat pumping for new energy vehicles is also remarkable. The company's heat pump controller binds to leading car companies and enters the product release period, and the scale effect is beginning to show. Heat pumps are gradually replacing PTC as the mainstream solution in electric vehicles. The penetration rate in '22 was 20%, and the penetration rate is expected to rise to 55% in '27. The ASP for the heat pump controller is nearly 400 yuan. It is estimated that the market size of the electric vehicle compressor controller reached 3.1 billion yuan in '27, and the CAGR reached 42% in 22-27. The heat pump system for new energy vehicles consists of core components such as compressors, valves, and heat exchangers. Among them, the compressor barrier is the highest. In '22, domestic and global electric vehicle compressors all exceeded 70% CR4, and foreign investment is the main focus, so the supply chain is relatively closed. The company laid out the new energy vehicle sector in 2014, supporting Tier1 compressor plants such as Huayu Sandian, and entered the supply chain of mainstream domestic and foreign car companies. In 2022, the company's share of the domestic market was less than 6%. Domestic production substitution is still accelerating, and volume profit is expected to rise sharply in the future.

Companies in the industrial sector have accumulated servo motor and controller products. While consolidating their main business, they have the potential to enter the robot industry. The company's servo products have been settled for nearly 10 years and are in the stage of channel expansion and brand building. Mass sales have been achieved in industrial robots, electronics manufacturing, logistics, packaging machinery, printing, lithium batteries and other segments. The company is expected to enter the humanoid robot industry with the accumulation of servo driver and servo motor technology, and the automation field has broad prospects.

Profit forecast and investment rating: The company is the leading heat pump controller. The company's net profit for the year 23-25 is estimated to be 2.95/4.60/640 million yuan respectively, +40%/+56%/+39% over the same period last year, and the corresponding PE is 26/16/12 times. Considering the vast heat pump market and the expected rise in product volume, 25 times PE was given in 24 years, with a target price of 121.9 yuan, covering the “buy” rating for the first time.

Risk warning: macroeconomic downturn at home and abroad, sales of new energy vehicles falling short of expectations, increased competition, etc.