Core views

In the first three quarters of 2023, the company's revenue continued to grow, mainly benefiting from the increase in revenue from drive system products. The company's profitability declined slightly, mainly due to: ① the company's expense ratio for the first three quarters was 22.52%, an increase of 1.91 pct over the previous year, of which the R&D expense ratio increased by 0.59 pct year over year; ② the share of revenue in the drive systems business segment with low gross margin increased.

As a leading enterprise in the small PLC field, the market share of various products has steadily increased, and the company continues to increase R&D investment, launch new products, improve product competitiveness, and expand application fields, which is expected to drive long-term improvement in overall performance.

occurrences

In 2023Q1-3, the company achieved revenue of 1,081 million yuan, an increase of 7.56% year on year; net profit of 155 million yuan, a decrease of 15.43% year on year; net profit after deducting 127 million yuan, a decrease of 23.88% over the previous year.

Among them, Q3 achieved revenue of 363 million yuan in a single quarter, an increase of 10.60% over the previous year; net profit of 51 million yuan, an increase of 7.32% over the previous year; and net profit after deducting net profit of 41 million yuan, a decrease of 7.06% over the previous year.

Brief review

Revenue continued to grow, mainly due to the increase in sales of driving system products in 2023Q1-3. The company maintained positive revenue growth in the context of weak manufacturing prosperity, mainly due to the rapid increase in revenue from the company's driving system products. By product, ① Programmable Controller (PLC) business segment: The company is a leading small PLC enterprise in China. In the first three quarters, the company made full use of the PLC brand advantages and actively expanded the market. According to Rui Industrial, 2023Q1-3's small PLC revenue increased by about 3.71% year on year, and its market share reached 7.19%, up 0.95 pct year on year. ② Drive Systems Business Segment:

The company continues to focus on expanding servo products, further optimizing and improving product quality and applicability, and implementing the PLC-driven servo strategy. 2023Q1-3's servo system revenue increased by about 15.51% year on year, and its market share reached 2.97%, an increase of 0.56 pct over the previous year; ③ Human Machine Interface (HMI) business segment: The company has a complete product line with various series and specifications, mainly including industrial touch screens, text displays, etc. In 2023Q1-3, the company's HMI revenue was basically the same year on year, with market share reaching about 4.19%, up 0.38 pct year on year.

Profitability is under pressure, mainly affected by changes in product structure and cost increases in 2023Q1-3. The company's gross profit margin and net profit margin were 33.66% and 14.30% respectively, down 2.86 and 3.89 pct from the previous year.

The decline in gross margin is mainly due to the increase in the share of the driving system business in the company's total revenue, and the gross margin of this business is lower than the company's overall level.

Net interest rates are under pressure, mainly due to: ① The decline in gross margin. ② The cost rate for the first three quarters was 22.52%, an increase of 1.91 pct over the previous year. Among them, the sales, management, finance and R&D expense rates were 8.62%, 4.74%, -0.28%, and 9.43%, respectively, +1.31, -0.09, +0.14, and +0.59 pct over the previous year. The increase in the sales expense ratio is mainly due to the company's strengthening of marketing network construction, and labor costs and expenses have risen; the increase in management expenses is mainly due to the headquarters building being put into use and the increase in depreciation management expenses; the increase in R&D expenses is mainly due to the company's increased investment in R&D. The company spent 102 million yuan on R&D in the first three quarters, an increase of 14.74% over the previous year.

The company made full use of the PLC brand advantages to increase the market share of various products, and continued to launch new products to strengthen product competitiveness. Against the backdrop of overall weakness in the industry, the company's share continued to rise. 2023Q-3 China's industrial control market is about 225.387 billion yuan, a year-on-year decrease of about 2.22%, and industry prosperity is weak. However, as a leading domestic small PLC enterprise, the company relied on continuous penetration in the small PLC market and gradually expanded the product line of medium-sized PLCs and other industrial control products closely related to PLCs, and the market share of various products continued to increase. According to Rui Industrial, 2023Q1-3's small PLC, servo system, and HMI revenue increased by about 3.71%, 15.51%, and 0.00%, respectively. The domestic market share reached 7.19%, 2.97%, and 4.19%, respectively, increasing 0.95, 0.56, and 0.38 pct year-on-year respectively.

The company continues to launch new products, and product competitiveness continues to improve. ① Programmable controller business: In July 2023, the company launched the XD3E series entry-level Ethernet PLC. This series provides multiple types and points of basic units, realizes flexible product configuration, and can effectively control costs for users. ② Drive system business: In July 2023, the company launched a high-performance servo driver DS5L2/DS5C2 to achieve high dynamic response and efficient vibration suppression. It can be used in photovoltaics, lithium batteries, semiconductors, 3C, textiles, lasers, packaging, printing, food and other industries. In October 2023, the company launched the MS6 series B4 ultra-short servo motor to optimize the magnetic circuit and structural design. The motor is more compact, the fuselage protection level has reached IP67, and is compatible with MS6-B1 series motors. It can be used in photovoltaics, lithium batteries, 3C, textile, meat, machine tools, robots, etc. with strict motor size requirements or oil and water vapor. ③ Human-machine interface business: In September 2023, the company launched the TS2 series economical man-machine interface. It is based on a Linux system and is also equipped with a high-efficiency A7 1GHz processor. Relying on TouchWin Pro programming software, it conforms to customer usage habits in terms of functionality and architecture.

Profit forecasting and investment advice

It is estimated that the company's net profit from 2023-2025 will be 2.10, 2.48, and 287 million yuan respectively, up -5.45%, 18.22%, and 15.68%, respectively. The corresponding PE will be 24.25, 20.51, and 17.73 times, respectively, maintaining the “buy” rating.