Key points of investment:
It has been deeply involved in the motor field for 40 years, and endogenous epitaxial has continued to grow, and has become the world's leading comprehensive motor manufacturer. The company was founded in 1984 and listed on the Shanghai Stock Exchange in 2002. Since its establishment, the company has continuously expanded its motor product range, continued collaborative integration through endogenous epitaxial extension, and expanded its business layout and scale. From 2002 to 2023, the company's revenue increased from 210 million yuan to 15.57 billion yuan, with a compound annual growth rate of 22.8%. Facing the future, the company promotes and implements the “one, two, three development strategy” and transforms from a “product” supplier to a “system solution” supplier.
The three major sectors of industrial motors, household motors and electric transportation are growing steadily, and the company's basic market is stable:
1) Industrial motors lead the global share, benefiting from equipment renewal, energy saving and carbon reduction. The downstream industrial motors are scattered across various industrial scenarios. According to Omdia statistics, the global medium voltage and low voltage markets in 2022 were 4.6 billion US dollars and 14.2 billion US dollars respectively, and Wolong's market share was 11.5% and 7.5% respectively, ranking first and fourth. There is still plenty of room for growth in the long run. Revenue growth is driven by downstream capital expenditure, replacement of existing equipment, and technological upgrades for energy-saving motors.
2) Daily-use motors: Downstream demand is picking up, and the consumption potential of household appliances continues to be released. Since 2023, the domestic home appliance market has shown a moderate recovery trend. Combined with household appliances going overseas, demand in the household motor market has begun to pick up.
3) E-mobility: Cooperate with ZF to deepen the electric vehicle supply system. Through cooperation with ZF, the company obtained passenger car targets such as Xiaopeng and Geely, and expanded leading commercial vehicle customers such as Yutong and Sany, and the scale of business quickly began.
The low-altitude economy is taking off at an accelerated pace. Wolong's core components have a first-mover advantage and scarcity. The Ministry of Industry and Information Technology and other departments have proposed that by 2030, the low-altitude economy is expected to form a trillion-level market; electric drive systems are the core components of electric propulsion aircraft, and we expect the global eVTOL motor market to reach 42/357/189 billion yuan in 2030/2040/2050. Wolong has been investing in the development of aeronautical electric drive systems since 2019, forming a “3+1" strategic layout for small, medium, and large power grade aeronautical electric drive products and 1 airworthiness standard for civil aviation. Currently, it has deep cooperation with OEMs such as COMAC and Geely in China, and is leading the way in participating in industry standard formulation. It is a scarce core component participant in the low-altitude economy.
First coverage, giving a “buy” rating. As the world's leading motor manufacturer, the company's main motor business continues to grow steadily; based on deep accumulation and cutting-edge technology research in the field of motors, the company forwardly lays out motor drive systems for flying vehicles to promote the implementation of the low-altitude industry. We expect the company's net profit for 2024-2026 to be 1,077, 11.62 billion yuan, and 1,316 billion yuan, respectively, corresponding to the current market value (2024/5/17), PE 18/17/15 times. Referring to comparable companies, the company was given 25 times PE in 2024, corresponding to a market capitalization of 26.6 billion dollars, with room for 35% increase.
Risk warning: macroeconomic and downstream sentiment risks, increased risk of market competition, risk of falling short of expectations when a low-altitude economy falls short of expectations.