Key points of investment
Leading domestic industrial temperature control equipment, lays out temperature control for energy storage to create the second growth pole
The company is a leading domestic industrial temperature control equipment. It has formed four major product lines: liquid thermostats, electric box thermostats, pure water cooling units, and special heat exchangers. In 2019-2023, the company's net profit to mother grew rapidly from 74 million yuan to 182 million yuan, with a four-year CAGR of 25.27%. 2024Q1, the company experienced a low sales season, combined with an increase in the number of team members and increased expenses, achieving operating income of 274 million yuan, an increase of 0.57% over the previous year; net profit to mother was 0.05 billion yuan, a year-on-year decrease of 81.88%.
Power electronic devices: Investment in power grids and new energy sources is accelerating, and the penetration rate of temperature control of liquid cooling for energy storage is increasing rapidly in the field of temperature control of traditional power electronic devices. Benefiting from the acceleration of UHV investment and new energy construction, the temperature control demand for high-power electric energy conversion and control devices is steadily increasing. According to the forecast of Intelligent Research Consulting, the market size CAGR of China's high-voltage SVG industry can reach 7.58% from 2022 to 2026. In the field of energy storage temperature control, the larger capacity of energy storage cells is driving the market share of liquid cooling to continue to increase. It is estimated that in 2026, the liquid cooling temperature control market will be 12.01 billion yuan, and the CAGR will be 60.37% in 2023-2026. The company started with industrial liquid cooling temperature control technology and has a pioneering advantage in the field of liquid cooling temperature control for energy storage. In 2023, the company's energy storage business revenue reached 904 million yuan, accounting for 49.0%, profoundly benefiting from the rapid development of the energy storage industry. In the field of energy storage temperature control, through comprehensive advantages such as precise temperature control, high reliability, high safety, and temperature uniformity, the company has successfully expanded high-quality customers in the industry such as Ningde Era, Sunshine Power, CRRC, China Airlines, Kelu Electronics, Nandu Power, and Tianhe Energy Storage.
Industrial equipment: High-end equipment going overseas opens up room for growth. Temperature control of semiconductor equipment leads the field of domestic production to replace traditional industrial equipment. The domestic CNC machine tool market is growing steadily. It is expected that China's CNC machine tool market CAGR will reach 5% from 2022 to 2027, and high-end CNC machine tools from overseas are showing signs of recovery. In 2023, China's laser equipment market sales revenue was 99.4 billion yuan, up 13.47% year on year. With the development of the manufacturing industry, China's laser equipment market is expected to reach 1121 billion yuan in 2024, an increase of about 12.78% year on year. The company has developed advantages such as high accuracy, breadth and intelligence, and has accumulated deep roots in the field of CNC machine tools and laser equipment. ATF, a wholly owned German subsidiary, is based in Germany and is actively expanding overseas business. In 2023, the company's overseas business revenue was 86 million yuan, an increase of 41.51% over the previous year.
Data center: Demand for computing power is growing rapidly in the AI era, and low PUE requirements drive up liquid cooling support rates. According to data from the Ministry of Industry and Information Technology, it is estimated that the CAGR scale of computing power in China will reach 18.56% from 2022 to 2025. Under pressure to reduce carbon emissions, data center PUE requirements continue to rise. Compared with air cooling, liquid cooling technology can effectively save energy and has higher safety, and is expected to continue to increase penetration rate. According to IDC data, China's liquid-cooled server market reached US$1.55 billion in 2023, of which more than 95% use cold plate liquid cooling solutions. IDC predicts that in 2023-2028, China's liquid-cooled server market will grow at a compound annual rate of 45.8%. The company provides efficient, reliable and intelligent temperature control solutions for China's IDC industry through liquid cooling technology innovation and product development. The company launched full-chain solutions for plate liquid cooling and immersion liquid cooling in the data center product field, which can meet high power density heat transfer requirements, and the comprehensive PUE can reach 1.04.
Profit forecasting and valuation
First coverage, giving a “buy” rating. The company is a leader in domestic industrial temperature control equipment, driving growth in various fields such as energy storage temperature control+industrial equipment temperature control+data center temperature control. We estimate that the company's net profit for 2024-2026 will be 268 million yuan, 360 million yuan, and 466 million yuan, respectively, with EPS of 1.59, 2.14, and 2.76 yuan, and corresponding PE of 21, 16, and 12 times.
We selected leading temperature control equipment companies Invec and Shenling Environmental as industry comparable companies. The average valuation of comparable companies in 2024 was 34 times. Taking into account the company's performance growth and a certain margin of safety, we gave the company 34 times PE in 2024, with a target stock price of 54.16 yuan, corresponding to the current market value.
Risk warning
The development of the energy storage industry falls short of expectations; market competition increases risk; risk of fluctuations in raw material prices; risk of substitution of products from the same industry.