Independent research and development of UDM models to innovate high-end manufacturing

Based on the UDM model of independent innovation, the company has formed a highly information-based and automated intelligent manufacturing system to provide customers with R&D and production of intelligent control components, innovative consumer electronics, health environment and automotive electronics products, and provide overall intelligent manufacturing solutions for small and medium-sized enterprises. The company's customer base includes companies such as Logitech, Nestle, PMI (PMI), Bosch, WIK, Asetek, and Cricut.

Pioneering the UDM model, leading “manufacturing+R&D+quality”

The company independently innovates the UDM model, and the company's intelligent manufacturing capabilities, technology research and development capabilities, and quality control capabilities have built the core barriers of the UDM model. The company's UDM model has advantages such as 1) a higher degree of informatization and automation; 2) a stronger sense of service experience for customers; 3) higher communication intensity; 4) all-round delivery and docking; and 5) integration of the entire industry chain.

Large single products drive high performance growth, waiting for e-cigarette business volume 1) E-cigarette: In the context of tobacco control and harm reduction, the retail scale of the global e-cigarette industry is growing rapidly. PMI's IQOS products have gone through ten years of iteration to help PMI become the HNB e-cigarette market leader. PMI plans to commercialize IQOS in the US market in Q2 2024, accounting for 10% of the traditional tobacco and heated tobacco market share in the US within 5 years. The company is the second supplier of PMI e-cigarettes. On the basis of providing precision plastic parts for e-cigarettes, the company added cooperation for e-cigarette core components and complete machines. They have all now achieved mass production, and are expected to contribute significantly to an increase in performance in 2024. 2) Household engraving machine: The company is deeply tied to the leading Cricut. In the short term, with the further removal of Cricut product inventory, the company's household engraving machine business improved month-on-month and achieved significant year-on-year growth in the third quarter of 2023, and is expected to achieve better performance in 2024; in the long run, the household engraving machine market has broad prospects and low market penetration, and the company is expected to continue to benefit as a core supplier of Cricut. 3) Industrial control: The company has been with Logitech along the way. The company has obtained a new project in the field of Logitech Gaming, cooperated with Logitech's PWS BusinessUnit for the first time, and is actively seeking product cooperation opportunities in the audio field. New breakthroughs are expected under the new project and new BU. 4) Others: The company is actively expanding new product lines such as automotive electronics, healthy environments, smart homes, and brain-computer interfaces, and is expected to incubate new products.

Profit forecasts and investment advice

We are optimistic that the company will actively cooperate with major customers to develop large single products based on the UDM model. The e-cigarette business heating module and complete machine projects are expected to expand, the household engraving machine business is expected to improve, and it is expected to actively expand new product lines, and incubate new products. We expect the company's revenue for 2023-2025 to be 39.67/59.24/6.750 billion yuan, respectively, a year-on-year change of -8.7%/49.3%/13.9%, respectively, and net profit to mother of 4.69/7.60/914 billion yuan, respectively, a year-on-year change of -32.3%/61.9% /20.

3% As of March 22, 2024, the total share capital and closing market value of EPS were $0.60/0.97/1.17, respectively, and the corresponding PE was 27.30/16.86/14.01 times, respectively. The first coverage gives a “buy” rating.

Risk warning

Export product market and policy risks, risk of relative concentration of customers, risk of falling product gross margin, risk of fluctuations in raw material prices, risk of exchange rate fluctuations.