The company has always received great attention from the market in the past, and its performance was able to maintain rapid growth mainly due to the company's three main lines (increase in the share of energy-saving pumps in Europe, average annual growth of 30-40% for industrial pumps, and high growth in liquid-cooled pumps) progressing steadily as expected. However, with the rapid increase in the share of energy-saving pumps and the formation of a high performance base, we expect that the growth rate of the energy-saving pump business may slow down in the future. In the third quarter of this year, due to high inventories in Europe and the vacuum period of heating equipment policies, sales of energy-saving pumps were under slight pressure, so the market gradually worried about the company's future growth potential and growth rate. However, we recommend paying attention to the potential increase brought about by the company's new business development. We believe that the company's future performance is expected to continue to grow at a high rate. Give the company 14 times PE in 2024, corresponding to the target price of 39 yuan, and maintain the “buy” rating.

Revenue is growing steadily. The first three quarters of 2023 achieved revenue of 1,417 million yuan, +21.09% year-on-year, and net profit of 249 million yuan, +46.83% year-on-year. Corresponding to 23Q3, revenue was 513 million yuan, +3.83% year-on-year; net profit was 82 million yuan, +16.57% year-on-year. Sales of energy-saving pumps were slightly under pressure in the third quarter due to high inventories in Europe and the vacuum period of heating equipment policies.

Product structure has improved, and profitability has continued to improve. In 23Q3, the company achieved a gross profit ratio of 32.13%, a year-on-year +3.78pcts, a net profit margin of 15.92%, and a year-on-year +1.66pcts. We expect that the increase in sales of high-profit products such as industrial shielding pumps, automotive liquid-cooled pumps, energy-saving pumps, and high-power shielding pumps will further benefit the improvement of the company's profit quality.

Demand for energy-saving household pumps is strong in Europe. Household shielded pumps: As European companies' inventories rise, there may be some pressure on energy-saving pumps in the short term. Civilian pumps: Demand in the sector has further improved month-on-month, revenue continues to recover, and export sales are under slight pressure. Major customers have foreign exchange quota issues. We expect export sales to recover better next year; we expect the industrial shielding pump business sector to maintain a consistent steady growth trend; the liquid-cooled vehicle pump sector is expected to continue to achieve a relatively rapid growth rate based on an overall small base, and overall profitability continues to improve.

Risk factors: Downstream prosperity falls short of expectations; new customer development falls short of expectations; raw material prices have risen sharply; exchange rate fluctuations; company export sales have fallen short of expectations; market competition has intensified.

Profit forecasts and valuation ratings: The company has always received great attention from the market in the past, and its performance has been able to maintain rapid growth mainly due to the company's three main lines (increase in the share of energy-saving pumps in Europe, 30-40% annual growth in industrial pumps, and high growth in liquid-cooled pumps) progressing steadily as expected. However, with the rapid increase in the share of energy-saving pumps and the formation of a high performance base, we expect that the growth rate of the energy-saving pump business may slow down in the future. Therefore, the market is gradually worried about the company's future growth potential and growth rate. However, we recommend paying attention to the increase brought about by the company's new business developments. The company currently has some poor expectations, and the valuation is at a historically low position. We believe that the main reason is that the market has not yet fully recognized the high growth of the company's multiple businesses in the future, and there is great potential for the company's stock price to rise. According to the three-quarter report, the high inventory of European heat pumps is expected to be under some pressure, but we expect that with the removal of European heat pump inventories, the company will have a lot of room for future exports of energy-saving pumps (heat pump components) to Europe. Based on this, we adjusted the company's net profit forecast for 2023-2025 to 345 million/465 million/583 million yuan (original forecast value was 352 million/433 million/535 million yuan). We recommend focusing on the growth potential of the company's diversified business in the future. Combining comparable companies Lingxiao Pump Industry and CICC Environment, Wind agreed to average 14x PE in 2024, and considering the high-quality growth of the company's performance, continued expansion of diversified business, and strong certainty in 2024 performance, based on this, we gave the company 14 times PE in 2024, corresponding to a target price of 39 yuan (original target price of 35 yuan), maintaining a “buy” rating.