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Micromotor is a high-quality enterprise with remarkable advantages in segmented racetracks. The company was founded in 2004. Its main business is R&D, production and sales of micro motors and related products. The products cover the three types of AC series motors, DC brushless motors, and DC brushed motors. They are mainly used in the field of cleaning appliances represented by vacuum cleaners, and have also developed simultaneously into other terminal applications such as power tools and garden tools. 2020-2023H1, the company's downstream vacuum cleaner products accounted for more than 83% of the revenue. In 2020-2022, the company's main suction motor products all accounted for more than 27% of the global market share; in 2023, the company's unaudited operating income was 2,057 billion yuan, +13.76% year-on-year; unaudited net profit to mother was 198 million yuan, +6.07% year-on-year, and overall performance showed an upward trend.

The micro motor industry is growing steadily, brushless DC motors. According to QYResearch data, the global micromotor market size is approximately RMB 23.5 billion in 2022, and is expected to reach 278.4 billion yuan in 2029, with a CAGR compound annual growth rate of 2.7% for the 2023-2029 period. DC brushless motors, one of the company's main products, have significant advantages. Under the downstream electrification/cordless trend, the penetration rate of DC brushless motors is expected to increase. One of the company's IPO fundraising projects, the annual output of 30 million brushless motors and control systems and the capacity expansion project of 5 million sets of battery packs helped the company increase the production capacity of DC brushless motors and increase supporting capacity, and is expected to achieve accelerated growth.

There are a wide range of downstream applications, and the company is expected to continue to benefit. The company's products are currently widely used in various household appliances such as vacuum cleaners, electric tools, garden tools, high-speed hair dryers, etc., and continues to expand downstream application fields. 1) Vacuum cleaner market:

The global vacuum cleaner market sales will reach US$15.259 billion in 2027, with an average compound annual growth rate of 6.19% between 2022 and 2027. Currently, the number of vacuum cleaners owned in China is far less than that of developed countries. It is in the early stages of popularity, and there is still plenty of room for growth.

2) Power tools: The global power tools industry market is growing steadily, reaching US$38.6 billion in 2025, with a compound growth rate of 5.8% in 2020-2025. 3) Garden tools: According to Frost & Sullivan, the global garden tools market is expected to reach US$32.4 billion in 2025, with a compound growth rate of 5.1% between 2022 and 2025. 4) Hair dryers: The trend of high-speed hair dryers is beginning to show, and the market share of high-speed hair dryers will continue to increase.

The company has a significant competitive advantage, and the IPO fundraising has accelerated growth. 1) Perfect product system and leading technical advantages. The company has developed unique product and technical advantages in various aspects such as product performance, structural design, and function implementation. According to estimates in the company's prospectus (registration draft), the company's main suction motor products reached 27.01% of the global market share in 2022. 2) Large-scale production helps further reduce costs and increase efficiency. The company currently has an annual production capacity of more than 60 million units of micro motors, which has reached the forefront of its peers. The efficiency of scale makes the company have a great advantage in production costs. 3) The company has low customer concentration, rich customer resources and high stickiness. The company's products are widely used in well-known cleaning appliance terminal brands including Bisheng, Shark, TTI, Electrolux, iRobot, etc., and have strong customer stickiness.

Profit forecast and valuation suggestions: 1) We expect the company to achieve operating income of 19.97 billion yuan, 23.29 billion yuan, and 2,730 million yuan in 2023/2024/2025; 2) PE method valuation: Under the PE valuation method, we give Xing Desheng PE (2023E) 17.00-20.00x, and predict that the company will achieve net profit of 199 million yuan in 2023, corresponding to the overall fair value range of 33.77- 3,973 billion yuan; 3) DCF valuation method: Under the DCF valuation method, the sustainable growth rate was 0.5%-1.5% under a neutral scenario, and WACC was 8.97%-9.97%. The estimated overall fair value range of the enterprise over a 6-12 month forward period was 2,825-3.442 billion yuan. 4) Valuation conclusion: The two valuation methods, the comprehensive PE valuation method and the DCF valuation method, intersect the company's overall fair value for the 6-12 month forward period. We believe that the company's overall fair value range for the 6-12 month forward period is 3377-3.442 billion yuan. The PE range corresponding to net profit to mother in 2023 is 17.00-17.33x, the PE range corresponding to net profit to mother in 2022 is 18.09-18.44x, and the PE range corresponding to net profit without return to mother in 2022 is 18.50-18.86x. In the nearly one month ending February 28, 2024, the static average price-earnings ratio of the “electrical machinery and equipment manufacturing industry” (CSRC industry code: C38) in the “manufacturing industry” announced by China Securities Index Co., Ltd. was 15.77 times.

Risk warning: risk of performance falling short of expectations, risk of concentration in downstream application areas, risk of changes in raw material prices, risk of changes in gross margin, risk of exchange rate fluctuations, risk of large inventory size, risk of human resources related risk, risk of loss of technical talent and core technology, risk of falling prices of long-term inventory, etc., risk of technological innovation, risk of tax incentives, risk controlled by actual controllers, risk of gambling agreements, risk of social insurance and housing fund reimbursement risk, risk of additional depreciation risk in fund-raising projects, risk of fluctuations in secondary markets and comparable industries, price-earnings ratio levels The risk is higher than the overall price-earnings ratio level of the industry.