Key points of investment

First quarter of 2024: Performance was briefly pressured by changes in fair value, expecting new developments in humanoid robot sensors 1) Full year of 2023: The company achieved operating income of 1.07 billion yuan, up 1.1% year on year; net profit to mother of 310 million yuan, up 20.1% year on year; achieved gross profit margin of 43.0%, +2.8 pct year on year; net profit margin of 31.3%, year on year +5.3 pct year on year. By business, revenue from the mechanical sensor and instrument series increased 1.2% year on year; revenue from the industrial Internet of Things and system integration series decreased 0.9% year on year; and the platform product line decreased 1.1% year on year.

2) Fourth quarter of 2023: The company achieved operating income of 270 million yuan, an increase of 3.1% year on year; net profit to mother was 100 million yuan, an increase of 55.2% year on year.

3) First quarter of 2024: The company achieved operating income of 250 million yuan, an increase of 12.9% year on year; net profit to mother was 40 million yuan, down 23.1% year on year. The reduction in fair value of 12.26 million yuan affected net profit attributable to mother in the first quarter, mainly due to changes in the fair value of Chicheng shares.

Based on strain sensors, the strategic investment layout aimed at integrating multiple physical sensors opens the framework 1) Strain sensors have broad demand prospects as one of the core key components of China's “strong foundation projects”. In 2022, China's strain sensor market reached 3.06 billion yuan, and the CAGR in 2016-2022 was 14%.

2) Mainly in Shenzhen and the Yangtze River Delta region, the company has completed strategic investments in 11 projects, forming an investment layout in six major fields: industrial inspection and measurement, environmental equipment measurement, energy equipment, equipment monitoring, logistics, and platforms.

The “KMS Group Management System” (Keli Management System) was proposed, which not only focuses on performance growth, but also focuses on post-investment integration, stabilization, and risk control. Through “investment promotion” and “production promotion”, the three major industrial parks of Ningbo (high-end manufacturing base), Zhengzhou (integrated manufacturing base for sensors and IoT systems), and Shenzhen (smart sensor industrial park) are progressing steadily.

Humanoid robot industry trends have been established, and demand space for torque sensors, flexible tactile sensors, etc. is broad 1) Humanoid robots mainly include four core technology modules: environmental sensing module, intelligent AI chip module, motion control module, and operating system module. As target application scenarios for humanoid robots expand from industrial scenarios to home scenarios, higher requirements are placed on humanoid robot sensor systems.

2) Facing new market trends, the company will focus on “four new” sensors in the future: robot sensors, multi-physical sensors, flexible tactile sensors, and torque sensors. In terms of torque sensors, the company tested products and sent samples to several domestic downstream manufacturers, and received unanimous praise and recognition from downstream customers in terms of quality, cost, and delivery. In the first half of 2024, the company accelerated the digital six-dimensional force sensor project jointly developed with its subsidiary on the basis of an analog six-dimensional force sensor that had already been tested earlier. In terms of flexible tactile sensors, the company actively cooperates with technology-leading domestic start-ups through mergers and acquisitions.

Profit forecasting and valuation

Net profit due to mother for 2024-2026 is estimated to be 360 million yuan, 450 million yuan, and 570 million yuan, respectively, up 17%, 26%, and 25% year-on-year, corresponding to PE 24, 19, and 15 times. As a leading sensor company in China, the company “multi-physical sensor fusion” creates a sensor forest, and humanoid robots are expected to open up new market space.

Risk warning: technological breakthroughs fall short of expectations; market demand falls short of expectations; industrialization of humanoid robots falls short of expectations