The company's recent situation

Bosch invests in Hechuan: The company issued an announcement that the original shareholders surpassed the company's intention to transfer 7.555 million shares of the company (accounting for 5% of the original total share capital of the company) to Bosch China through an agreed transfer.

Set up a joint venture subsidiary with Bosch: In addition, the company, Robert Bosch International Investment Company and Bosch China jointly funded the establishment of Leda Bochuan Automation Company with a registered capital of 120 million yuan. Hechuan holds 50% of the shares, Bosch China holds 10% of the shares, and Robert Bosch holds 40% of the shares. It plans to mainly engage in R&D, production automation and electrification related product services. Among them, the joint venture is a joint venture company of Hechuan.

reviews

Bosch Rexroth is an industrial control brand owned by the Bosch Group. Established in 1978, Bosch Rexroth mainly focuses on providing power electronics, transmission and control, linear drive and other related technologies and solutions in the field of automation. According to the company's official website, Bosch Rexroth's revenue in 2022 was about 7 billion euros, YoY +14%, new orders reached 7.3 billion euros, and YoY -2.1%. According to the company's official website, in terms of sales regions, Bosch Rexroth mainly focuses on America, Europe (excluding Germany), Asia/Africa/Australia and other regions. In 2022, its sales revenue was 1.4 billion euros, 1.4 billion euros, and 1.8 billion euros, respectively.

Investing in Hechuan and establishing a subsidiary with Hechuan has become a puzzle for Bosch to increase China and strengthen mergers and acquisitions in recent years. In recent years, Bosch Rexroth has continued to enhance product competitiveness through mergers and acquisitions of many companies and the establishment of joint ventures. We saw that in 2022, the company acquired the mechanical and electromagnetic cartridge valve company HydraForce, the Danish robot company Kassow Robot, and Elmo Motion Control, which is positioned as a high-end motion control, making ELMO an important product portfolio for CTRLX automation. Furthermore, in 2022, Bosch Rexroth also established factory automation company Leda Bohua in China and hydraulic company Rexroth Hydraulics in China. We believe that the cooperation with Hechuan is another step up in China.

We believe that the company's partnership with Bosch may further help the company build a complete product portfolio and solution system, and further achieve mutual benefit and win-win situation. Hechuan is the second servo brand in the Chinese market. It has continued to develop rapidly in recent years, while the market size of Bosch Rexroth in China fell 9% year on year in 2022. Bosch Rexroth has strong technical accumulation in various fields such as hydraulics, industrial control, and precision transmission, etc., and while building a localized sales network, the joint venture also uses the resources of both parties to further develop a more complete product portfolio and flexible transmission system products.

Profit forecasting and valuation

Maintain the 2023/24 net profit profit forecast of 90/160 million yuan, corresponding to a price-earnings ratio of 38.8x in 2024. Maintaining an outperforming industry rating and a target price of 45 yuan, corresponding to a price-earnings ratio of 43.3x, there is still room for 11% increase compared to the current stock price.

risks

Downstream demand fell short of expectations, and industry competition intensified.