occurrences

Dechang Co., Ltd. announced that it has received a designated notice for the customer project: The wholly-owned subsidiary has received the EPS motor target from the world's leading Tier 1 company in automotive steering systems. The project life cycle is 4 to 7 years, and the total sales are expected to be about 292 million yuan. Mass production is expected to gradually begin in May 2024.

Key points of investment

Vacuum cleaners are growing steadily, and there is a high increase in zeros and other small household appliances

The company focuses on the field of small household appliances and auto parts, and implements the development strategy of “vacuum cleaner based business, diversified small household appliances as growth business, and EPS motors as strategic business”. In the first three quarters of 2023, the home appliance business achieved revenue of 1,918 billion yuan, up 33.06% year on year. Among them, vacuum cleaners achieved revenue of 1,258 billion yuan, an increase of 11.68% year on year, and other small household appliances achieved revenue of 660 million yuan, an increase of 109.40% year on year; auto parts business achieved revenue of 138 million yuan, an increase of 362.17% year on year.

Small household appliances: The basic vacuum cleaner board is stable, and the customer and product categories are integrated into the company's home appliance business mainly in the form of ODM/OEM, adhering to the strategic big customer cooperation route. They have formed strategic partnerships with leading international home appliance brands such as Chuangke Industrial (TTI) and Helen Troy (HOT). The products cover environmental household appliances (vacuum dryers/water machines, humidifiers, electric fans, etc.) and personal care appliances (curling irons, hair dryers, etc.). The terminal market is mainly in North America and Europe.

With the basic vacuum cleaner market stable, the company continues to explore the increase in the home appliance business: 1) Expand customers: introduce a new strategic customer with an internationally renowned small household appliance in 2023, and will expand the scope of cooperation with it in the future, from a single TTI binding to multiple customers; 2) Expand category: continue to follow up on garden power tool projects; the new kitchen appliance smart dishwasher is expected to be mass-produced in 2024; 3) Expand production capacity: Accelerate the expansion of small household appliance production capacity to exert scale effects. In 2023, 800,000 units/year production capacity was added to the Vietnamese base, with a total annual production capacity of 3.8 million units; Annual output The “7.34 million small household appliances construction project” has progressed smoothly. The main factory construction has been completed and has entered the inspection stage.

Automobile EPS motors: Continuing to gain a fixed point and enter the rapid release period Electronic power steering systems (EPS) are currently the mainstream automobile steering systems. EPS motors are the core precision safety components of steering systems, and are mainly brushless motors.

Currently, as the trend of vehicle localization continues to deepen, the trend of domestic replacement of EPS motors is obvious, providing good opportunities for the company's EPS business development, and targeted and mass production of new projects continues to be implemented.

By the end of June 2023, the company had obtained a total of 28 automobile motor project targets, 16 of which had achieved mass production. Customers covered well-known domestic and foreign steering/braking system suppliers such as Nexteer, ZF, JTEGT, Shanghai Tongyu, and Shanghai Likron, with a total fixed amount of over 2.3 billion yuan from 2023 to 2026. Since June 2023, the company has continued to receive a number of high-quality EPS motor targets, including the ZF project, Nexteer's $143 million project in North America, and recently received 292 million yuan from Tier 1, the world leader in automotive steering systems. Continued acquisition of high quality targets has verified the company's excellent R&D and production capacity and product competitiveness, and the auto parts business is expected to enter a period of rapid expansion.

Aim for long-term space and lay out a new racetrack for humanoid robots

The company announced in October 2023 that it plans to develop strategic cooperation with five enterprises to jointly build the Guangdong Humanoid Robot Innovation Center and establish “Shenzhen Humanoid Robot National Innovation Center Co., Ltd.” as the actual operating carrier of the innovation center. The company invested 5 million yuan, held 7.69% of the shares, and mainly undertook technology research and development in fields related to humanoid robot motors. The humanoid robot business is expected to become the company's third-largest growth curve.

Profit forecasting

It is predicted that the company's revenue for 2023-2025 will be 27.70, 35.96, 44.3 billion yuan, and EPS will be 0.89, 1.04, and 1.33 yuan respectively. The PE corresponding to the current stock price is 17.3, 14.8, and 11.6 times, respectively. We are optimistic that the company's home appliance business will grow steadily. EPS motors will enter a period of rapid expansion, and humanoid robots will open up room for long-term growth, cover for the first time, and give a “buy” investment rating.

Risk warning

Demand for small household appliances falls short of expectations; risk of small household appliance customers/category expansion falling short of expectations; risk of auto zero business growth falling short of expectations; risk of fluctuations in raw material prices; risk of exchange rate fluctuations; and systemic risk of the general market.