Key points of investment

On February 23, 2024, the company released the 2023 performance report. In 2023, it is expected to achieve revenue of 1,127 billion yuan, an increase of 19.4% over the previous year. The main reason is that the company's customer sales in the photovoltaic industry increased during the reporting period, while machine tool mainframe product revenue increased dramatically. Net profit due to mother is estimated to be 53.33 million yuan, a year-on-year decrease of 40.99%. Net profit without return to mother is estimated to be 28.63 million yuan, a year-on-year decrease of 64.02%. The main reason is the sharp increase in R&D and sales expenses: on the R&D side, continue to promote a one-stop overall solution strategy, improve the “light, mechanical, electricity and transmission” integrated product layout, add inverters, photovoltaic energy storage, precision rail screws, and industrial motor projects, optimize controller and inverter R&D teams; on the sales side, promote a turnkey strategy for segmented industries, increase application solution personnel in various industry segments, and increase investment in developing solutions.

The automation industry has a 300 billion dollar market, and the general trend of domestic substitution has led the company to expand rapidly. In 2022, China's industrial automation market is close to 300 billion, and the localization rate of servos and small PLCs has advanced rapidly, reaching 44% and 23%. The company's main orders come from booming emerging manufacturing industries such as photovoltaics, lithium batteries, robotics, and lasers. The company's servo products quickly penetrated by adopting a price reduction strategy, with a market share of over 4%, ranking second in domestic investment; implementing an industry-focused strategy to develop major customers in the lithium battery and photovoltaic industries through dealer channels.

Focus on the industrial automation industry, create five core competencies, and join hands with the world's leading automation brand Bosch Rexroth, and there is plenty of room for growth. The company uses the integration of “R&D, production and marketing” to achieve in-depth manufacturing, and relies on the capital market to actively expand production capacity. Short-term polishing product power, vertical extension, rapid iteration of servos and PLC, and internationally advanced performance; horizontal expansion, layout guide screws, planetary roller screws, and micro inverters will focus on achieving full coverage at all levels in the industrial control field in the future. Build brand power over a long period of time and transform the overall solution provider. The digital transformation of the manufacturing industry is the general trend. The company leverages its product portfolio advantages and has in-depth personalized solutions in various industries such as photovoltaics, lithium batteries, robotics, and lasers. In the future, industrial automation products will be further integrated with information technology such as MES and SCADA to transform the overall solution provider for digital factories.

Investment advice

Short-term: The growth rate of the manufacturing industry is bottoming out. It is expected to recover moderately in 2024, and the company is actively entering traditional industries to find new growth points; long-term: 1) In terms of products, the company's product layout is continuously improved, the servo system continues to increase market share, and products such as medium and large PLCs, inverters, linear motors are gradually being released; 2) In terms of downstream applications, the humanoid robot business is gradually being implemented, opening up room for growth. At the same time, the automation business forms a competitive advantage in some traditional industries.

Profit forecast and valuation: Revenue for 2023-2025 is expected to be 11.3 billion yuan, 1.46 billion yuan, and 1.9 billion yuan, respectively, up 19%, 29%, and 31% year-on-year net profit of 0.53, 1.37, and 170 million yuan, respectively, with year-on-year increases of -41%, 156%, and 24%, corresponding to PE of 89, 35 and 28 times, maintaining a “buy” rating.

Risk warning: The recovery of the manufacturing industry fell short of expectations; regulatory approvals were delayed and not passed; product technology development progress fell short of expectations.