Core views

The company's holding subsidiary Weiyuan Zhongjia has reached a strategic cooperation with Galaxy Aerospace to carry out in-depth cooperation on precision processing, production and assembly of core components for satellite energy, communication and control modules, which is conducive to the continuous improvement of its core competitiveness. Currently, the company is a leader in the independent EGR and motor core business, and various businesses are full of orders; the EGR business is benefiting from the recovery of commercial vehicles and the accelerated penetration of hybrids, and the succession of new production capacity in the motor core business is conducive to the release of ongoing orders; and the company's future performance and valuation are both positive.

occurrences

On March 14, the company announced that the holding subsidiary Weiyan Zhongjia recently signed a “Strategic Cooperation Agreement” with Galaxy Aerospace (Beijing) Network Technology Co., Ltd. Based on long-term development strategy considerations, the two sides decided to jointly carry out in-depth cooperation on precision processing, production and assembly of core components of satellite energy modules, communication modules, and control modules based on their respective technology and practical accumulation.

Brief review

Join hands with the first domestic commercial aerospace unicorn to enable incremental business layout in the aerospace field. Weiyan Zhongjia, a holding subsidiary of the company, has the ability to design, process and manufacture aerospace products, precision molds, precision tooling, and industrial automation equipment, and provide complete system integration solutions. Its business covers various fields such as aerospace, automobiles, consumer electronics, and communications.

The partner Galaxy Aerospace is China's leading satellite internet solution provider and satellite manufacturer. It became the first unicorn enterprise in the commercial space field in China in 2020; it has now successfully launched multiple low-orbit broadband communication satellites, formed China's first low-orbit broadband communication test constellation, and built a 5G test network integrating stars and earth. According to the agreement, the two sides will use their respective advantages to establish a collaborative platform to jointly realize the design, processing and production of satellite structural, mechanical, microwave and other products. Galaxy Aerospace is responsible for issuing product drawings, assembly process documents, etc.; Microresearch Zhongjia is responsible for providing supporting process equipment and completing corresponding production tasks as required. The two sides can jointly research and expand related technologies and production processes in the commercial space field to further deepen cooperation. At present, China's commercial aerospace has moved from a start-up period to a period of rapid development. It was first included in the government work report in 2024, and the potential market size reached trillion dollars. Through this cooperation, the company will further enhance its satellite product development capabilities, lay a good business foundation for gaining a first-mover advantage in cutting-edge fields such as commercial aerospace in the future, which is conducive to the long-term improvement of core competitiveness.

The company's operating performance in 2023 was steady, and the EGR and new energy businesses progressed smoothly. In 2023, the company expects to achieve net profit of 144-159 million yuan, a year-on-year increase of 90%-110%, after deducting non-net profit of 120-133 million yuan, an increase of 80%-100% year-on-year.

Currently, the company's business is divided into three segments: EGR, new energy, and precision components. On the EGR side, technology can now enable the light, medium and heavy diesel vehicles, natural gas heavy trucks, non-road machinery, and passenger vehicle hybrid markets, opening up a new space for the off-road T4 stage and passenger vehicle hybrid EGR market in 2023. At the same time, the company's natural gas heavy truck jet rail assembly products are under active warranty, and natural gas heavy truck EGR system products are accelerating incremental supply to replace imports, and sales of EGR segment products have increased significantly year-on-year. In terms of new energy, the company's drive-motor core product stock and customer business increased steadily in 2023, and sales increased due to the addition of many popular new energy models from customers. Currently, the customer structure and product system of the company's motor core business continue to be improved. End customers include mainstream new energy vehicle companies such as Genjie, Xiaomi, NIO, and Ideal. At the same time, project targets for various customers such as Fudi Power, Star Drive, and Jinkang Power have been added, which is expected to drive the continuous release of the company's performance. Furthermore, in order to meet the company's strategic development needs, while maintaining the rapid development of its main business, the company plans to use its own capital of 124 million yuan to pledge 9.15% of Ruixiang 1's total amount. Ruixiang 1 plans to acquire part of the property shares of Qingdao Xincheng Haishun held by Wuhu Kingsman. Its main business is investment in the vehicle and automobile industry chain, and the key investment project is Chery Automobile.

Investment advice

The company is a dual leader in the independent EGR and motor core business, and various businesses are full of orders; the EGR business benefits from the recovery of commercial vehicles and the accelerated penetration of hybrid vehicles, and the succession of new production capacity in the motor core business is conducive to the release of on-hand orders. The company's net profit for 2023-2024 is estimated to be 150 million yuan and 230 million yuan. Corresponding to current stock prices, PE is 25X and 16X, giving it a “buy” rating.

Risk analysis

1. The industry boom falls short of expectations. Stimulated by steady growth policies such as automobile purchase tax cuts in the second half of 2022, the industry is booming; the industry may fluctuate in anticipation of a decline in policy support.

2. The competitive pattern of the industry has deteriorated. Domestic and foreign parts suppliers compete. With changes in supply factors such as technological progress and new production capacity investment, industry competition may intensify in the future, and the company's market share and profitability may fluctuate.

3. The progress of customer development and mass production of new projects fell short of expectations. The company is accelerating the expansion of new customers. Considering the fluctuation in the pace of development of new model projects by car companies, there may be fluctuations in the fixed project cycle within a specific period of time; in addition, the company's new production capacity construction may be affected by uncontrollable factors, causing mass production progress to fall short of expectations.