Report summary:

Controller expert, diversified layout. The company is mainly engaged in heat pump related controllers, which are linked to direct sales of domestic and foreign compressors. The downstream covers the three major fields of HVAC/R (HVAC and refrigeration equipment), thermal management for new energy vehicles, and industrial control servos. The company has been deeply involved overseas for 14 years, accounting for 34% of overseas revenue in '22. In 2014, it established a joint venture with Emerson to establish Confucian Emmerson. With its product strength and channel cooperation with Emerson, it has become a core supplier for leading overseas heat pump manufacturers. The 20-22 revenue/return CAGR was 37%/182%. Benefiting from the trend of heat pumping, performance entered a period of rapid growth.

Heat pumps are in high demand, and controllers have great potential. The air source heat pump makes effective use of air heat energy, a renewable energy source. The energy saving effect is remarkable, and zero pollution can be achieved during operation. Compared with other heating equipment, heat pumps can achieve better energy efficiency and cost savings. According to the forecast of the European Union Heat Pump Association (EHPA), in 2026, the EU heat pump market will exceed 15 billion US dollars, and the sales volume of heat pumps will double from 2021 to more than 4 million units; in 2031, the EU heat pump sales volume is expected to reach more than 14 million units, and the CAGR will reach 15% in 2022; assuming that the heat pump penetration rate continues to increase by 2 pcts per year for the next 5 years, the corresponding heat pump sales volume is expected to reach 4.6 million units by 2026. According to the revenue structure, in 2020-2022, the company's main business revenue came from commercial air conditioning system controllers and heat pump system controllers, accounting for 80% of total revenue. As the core components of air source heat pump products, the heat pump system controllers and variable frequency drives produced by the company mainly meet the needs of the Chinese and European markets. They are highly in line with the continuously strengthened energy transition support policies in the context of “carbon neutrality and carbon peak”. They are gradually being widely used in the fields of commercial and household heating and industrial agricultural drying. The scale of the industry will flourish, and future business growth will be sustainable, thus effectively driving the continuous expansion of the application market for core components such as variable frequency drives.

The layout of a humanoid robot circuit has unlimited potential. The company stated on the investor interactive platform that the company's products in the field of humanoid robots are currently in the development stage. Relying on the company's technical accumulation and customer resources in the field of power electronics and motor control, it is expected to gradually open up new downstream fields. We believe that humanoid robots are in the 0-1 explosion stage. According to our estimates, the demand for the industrial scene will reach 3.284 million units, and the demand for the home & business scenario will reach 435,000 units, and the overall market size is close to 40 billion US dollars. Therefore, if the company successfully enters downstream customers and achieves supply, it is expected to open up new growth space in the future.

Profit forecast: Optimistic about the company's market position in heat pump controllers and other fields, it is expected to benefit from the explosion of demand in various downstream fields in the future. We expect the company to achieve net profit of 298/4.31/568 million yuan in 2023-2025, corresponding PE 22/ 15/11 times. The 2024 profit was estimated at 20 times PE, and the target price was 91.5 yuan, maintaining the “buy” rating.

Risk warning: Hardware and cost optimization falls short of expectations, profit forecasts and valuation judgments fall short of expectations.