The motor core provides increments, and the EGR leader explores second logic. The company actively lays out the motor core business, has been deeply involved in EGR for nearly 20 years, and vertically integrates precision parts to collaborate in business development. Benefiting from the development of new energy vehicles and the implementation of EGR industry policies, the company achieved operating income of 1.1 billion yuan and net profit of 76 million yuan in 2022; gross profit margin of 18.92% and net profit margin of 6.28%.
The dual-motor acceleration motor core displacement supports growth by asking the community and Xiaomi's incremental customers. The motor core market is on the rise. Dual motor+domestic replacement brings about the motor core market volume logic. We expect China's motor core market to reach 8.584 billion yuan by 2026, and the four-year compound growth rate from 2022 to 2026 will reach 14.85%, including 7.091 billion yuan for pure electric motor cores and 1,493 billion yuan for plug-in hybrid motor cores. The company's downstream customers are actively expanding, mainly supplying terminal car companies through United Automotive Electronics. Its motor core terminal customers include mainstream new energy vehicle companies such as Wenjie, Xiaomi, NIO, and Ideal.
EGR policy implementation+technology application, the company has established leading advantages. “National 6” was fully launched on July 1, 2023. EGR is the mainstream application route; hybrid models use EGR to further improve the compression ratio, reduce the phenomenon of knocking on cylinders and save fuel consumption. We forecast the domestic EGR market space of 12.03 billion yuan in 2026, with a four-year compound annual growth rate of 15.09% from 2022 to 2026. As a leader in the EGR industry, the company has achieved coverage of the full range of EGR product matrices, and has formed in-depth cooperation with Tier 1 suppliers with vehicle companies such as Jiangling Motors, Cummins, and Quanchai Power.
Investment advice: Downstream customers in the motor core business continue to expand, open up market space, and EGR's leading position is in line with the implementation of the policy. We expect the company to achieve operating income of 17.25/3.2 billion yuan and net profit of 140/220/320 million yuan in 2023-2025. The corresponding PE was 29.86/18.98/13.02 times, respectively. It was covered for the first time, and a “gain” rating was given.
Risk warning: Risk that NEV production and sales fall short of expectations, risk that customer development progress falls short of expectations, and risk that the domestic replacement rate of motor cores falls short of expectations.