With the acquisition of Hongtian Technology in the field of lithium copper foil equipment, net profit returned to growth, and profitability improved markedly. The company is a traditional oil and gas equipment manufacturer. In 2022, the company acquired Hongtian Technology to lay out the field of lithium battery copper foil equipment. Hongtian Technology is one of the leading companies in the field of electrolytic copper foil equipment. Revenue grew rapidly and profitability remained stable. In 2018-2022, revenue CAGR was 75%, and net profit CAGR was 106%. In 2022, the company acquired Hongtian Technology and joined Hongtian Technology in the same year. The company achieved operating income of 2.90 billion yuan in 2022, an increase of 86.38% over the previous year, and achieved net profit of 106 million yuan to mother, turning a loss into a profit. Gross margin and net margin increased to 21.05%/7.67%, respectively, and profitability increased significantly.

The market for electrolytic copper foil equipment continues to expand, and it is time for domestic production to replace it. Cathode rollers are the core equipment for lithium copper foil production. In 2022, copper foil manufacturers accelerated production expansion, and demand for cathode rollers was strong. With the continuous accumulation of technology and price advantages, domestic equipment manufacturers have accelerated production expansion in recent years, and their market share has gradually increased. Currently, the localization rate is relatively high. According to estimates, the demand for additional electrolytic copper foil is estimated to be 180,000 tons in 2025, corresponding to the demand for additional equipment of 10.3 billion yuan in 25 years, and the compound growth rate will reach 9.34% between 2022 and 2025.

Improve overall competitiveness and stabilize leading position. The production expansion cycle of electrolytic copper foil core equipment is long, and there is a certain gap between equipment supply and demand during downstream production expansion. The company's production capacity is expanding at an accelerated pace, responding to downstream production expansion needs, while continuously increasing investment in R&D, gaining greater market share with increasingly advanced technology. At the same time, the scale advantage is expected to further reduce production costs. The company covers leading copper foil companies at home and abroad, and binds major downstream customers to grow together.

Frontier layout of composite copper foil equipment to create new growth space. The industrialization of composite copper foil is accelerating, and equipment is expected to benefit first. The company's cutting-edge layout of composite copper foil drying “one-step method” equipment is expected to open up new growth space.

With the development of the composite fluid collector industry, the company's vacuum coating equipment business is expected to grow rapidly.

Profit forecast and investment advice: The company is a leading company in electrolytic copper foil equipment and is expected to gain a higher market share with its technical and cost advantages. The company has a forward-looking layout of composite copper foil equipment, and the revenue of composite copper foil equipment is expected to grow rapidly, opening up room for second growth. Net profit due to mother in 2023-2025 is estimated to be 184 million yuan, 386 million yuan, and 399 million yuan, corresponding to PE 29, 14, and 13 times, covered for the first time, giving it a “buy” rating.

Risk warning: Demand for electrolytic copper foil equipment falls short of expectations, risk of increased market competition, risk that composite fluid collector business progress falls short of expectations, risk that composite fluid collector equipment technology routes are uncertain.