Key points of investment

Incident: The company plans to acquire 26.67% of Rujing Electronic Control's shares held by Mr. Zhang Wei at a price of 50 million yuan. After the transaction is completed, the company will hold 100% of Rujing Electronic Control's shares? The thermal management of new energy vehicles is in a period of rapid growth, and the acquisition of shares is increasing the mother's profit. Established in 2016, Rujing Electronic Control specializes in new energy vehicle thermal management business (compressor controller). Customers include leading compressor tier 1 such as Huayu Sandian and Shanghai Guangyu, and end customers cover mainstream car companies such as Tesla, Celis, SAIC, Geely, Volkswagen, and NIO. In 21-22, the number of new energy vehicle customers was targeted, and the company's revenue was 807/170 million, respectively, +295%/+97% over the same period last year. It is expected to further reach 300 million in '23. Looking ahead, the company's market share in '22 was less than 6% (compressor controller sales volume/new energy vehicle sales). As heat pumps increase the penetration rate of new energy vehicles and the release of new models, we expect a revenue CAGR of nearly 60% in 24-26. Under the 23H1 scale effect, gross margin has been raised to 24%. Volume profit is expected to rise sharply in 24-26, and the company's acquisition of minority shares is expected to increase the net profit of the car business.

The HVAC/R heat pump business is yet to be completed, and is expected to enter a recovery path starting from Q2. The company's heat pump business mainly supplies major customers in the European market. Currently, core customer inventories are still being digested, resulting in Q3 order growth falling short of expectations. We expect the de-library process to continue until 24Q1. Heat pump European and American policies and subsidies incentive+leading downstream customers have increased the medium- to long-term heat pump production capacity layout. The track has medium- to long-term certainty, the company's customer card is good, and short-term pressure does not change the long-term upward trend.

Profit forecast and investment rating: This equity acquisition will increase the company's net profit from the parent company. We raised the company's net profit from the parent company in 23-25 to 2.6/3.8/5.3 billion yuan (original value was 2.6/3.5/490 million yuan), +20%/+48%/+41% over the same period last year, and the corresponding PE is 34/23/16 times. Give it 30 times PE in 24 years, with a target price of 120.0 yuan to maintain the “buy” rating.

Risk warning: macroeconomic downturn, sales of new energy vehicles falling short of expectations, heat pump removal falling short of expectations, etc.