Description of the event

On the evening of November 8, the company issued an announcement to acquire 65% of Modoli Intelligent Drive's shares in the form of cash. The target company has a valuation of 315 million yuan, transaction consideration of 200 million yuan, and promised that the target company's cumulative net profit from non-return in 2023, 2024, and 2025 will not be less than RMB 0.21, 0.44, and 072 million yuan, respectively.

Incident comments

The acquisition will complement the company's product line and open up new growth space. Modoli's main products are precision planetary reducers, which are widely used in high-end equipment fields such as laser cutting machines, CNC machine tools, robots/manipulators, lithium battery equipment, photovoltaic equipment, printing equipment, etc. According to QY Research, the global sales volume of planetary reducers in 2022 was 5.4015 million units, with a market size of US$1,203 billion. Its domestic market sales volume was 2,3191 million units, and the market size was US$500 million. The company previously focused on the two major business lines of general-purpose speed reducers, gear reducers and cycloid reducers, and horizontally expanded the fields of special speed reducers, industrial gearboxes, and harmonic reducers. The platformization effect is gradually showing. Through this acquisition, the product line of precision planetary reducers can be completed, further enriching the product matrix and downstream applications, while also opening up new growth space.

Product collaboration+shared sales network is expected to promote collaborative development between the company and the acquisition target. On the product side, Modoli products and the company's existing business, especially the harmonic reducer business, have a certain industrial synergy effect, which is conducive to strengthening industrial interaction with downstream customers. On the sales side, the company's existing mature and perfect marketing network will help the target company's future business development. Furthermore, in 2016, Modoli established a joint venture called Reckon Drives International in France to promote products to high-end overseas customers, so it has sales channels that have operated in Europe for many years, which can also help the company expand the European market.

Modoli has strong competitiveness in high-end precision planetary reducers, which is expected to help domestic replacement. Currently, the high-end field of precision planetary reducers is basically dominated by overseas manufacturers. In 2022, the average import price of planetary gear reducers reached 384 US dollars, while the average export price was only 15 US dollars, reflecting the obvious shortage of domestic supply in the current high-end planetary reducer product market. After years of technological development and process accumulation, Modoli has mature and advanced high-precision planetary reducer production technology and process plans, and has established a large-scale precision planetary reducer production line and a perfect quality assurance system. Through ISO9001 international quality system certification, it has strong market competitiveness in the field of high-precision planetary reducers, and the company is expected to further promote domestic replacement through synergies with acquisition targets.

Maintain a “buy” rating. The company's platformization effect is gradually reflected, and special/high-end speed reducers continue to gain strength. We are optimistic about the collaborative development and gradual improvement in profitability between the company and the acquisition target. Net profit of 4.1, 52, and 63 million dollars is expected to be achieved in 2023-2025, corresponding to PE of 28x, 22x, and 18x, respectively.

Risk warning

1. Risk that manufacturing industry repair falls short of expectations;

2. The risk that the development of special speed reducers and high-end speed reducers falls short of expectations.