Thermal management industry leader+perfect vertical and horizontal product layout, improved profitability. The company's products include commercial vehicles and off-road thermal management, passenger vehicles and new energy thermal management products, industrial and civil thermal management products, etc. 1) Steady revenue growth: The company's revenue in 2023 was 11.02 billion yuan, an increase of 29.93% over the previous year, and CAGR10 reached 19.1%, mainly due to the company's rapid breakthrough in new energy passenger vehicle products. 2) Significant improvement in profitability: gross margin in 2023 was 21.57%, up 1.73 pct year on year. Mainly benefiting from factors such as customer structure optimization, cost management assessment mechanism improvement, and cost control, net profit to mother in 2023 was 612 million yuan, an increase of 59.71% year on year.

The general trend is to replace domestic thermal management for new energy vehicles, and ASP/customers/share continues to increase. ASP side: The value of NEV thermal management systems has increased significantly compared to traditional fuel vehicles. The value of fuel vehicle thermal management systems is estimated to be about 3,000 yuan, PTC air conditioning NEV thermal management systems worth about 6,000 yuan, and heat pump air conditioning thermal management systems worth nearly 7,000 yuan. Customer side: Taking advantage of the North American NEV company Dongfeng, customers are flourishing; at the same time, it is expected that new car builders such as Wei Xiaoli will benefit from the rise of new car builders. In terms of products, we develop modular products for new energy passenger vehicles such as refrigerant modules, chip cooling modules, front-end modules, and air conditioning boxes. In terms of share: Domestic substitutation+concentration of leaders. Compared with overseas leaders, the company's single customer market share is expected to continue to increase.

Growth core driver: Combining short and long logic to jointly drive the company to a new level. The commercial vehicle business resonates upward and the profit inflection point in North America, there is still room for growth for passenger car companies in North America, and the third curve of the civil industry. The company's performance is expected to rise to the next level. 1) Commercial vehicles: Still in the upward cycle, the market share of the commercial vehicle business is expected to continue to increase. With policy support and enterprise transformation and upgrading, commercial vehicles are expected to continue to grow. The China Association of Automobile Manufacturers expects the annual sales volume of commercial vehicles to reach 4.4 million units in 2024, an increase of 9.2% over the previous year, starting a three-year upward cycle. 2) At the turning point of profit in North America, there is still room for growth for North American NEV companies: new model catalysts and phase III plants may have poor expectations, and the company is expected to benefit, and the share of key categories will increase rapidly; at the same time, the Mexican plant has achieved break-even in 2023Q4. 3) Third growth curve for industrial and civil use: The company's industrial and civil products enter thermal management business in the fields of UHV transmission and cooling, engine heat transfer, power energy storage, data centers, etc. As intelligent development and industrial processes accelerate and continue to grow, the digital and thermal management market space is expected to expand from 60 billion yuan to 600 billion yuan in 2024-2035. The three sectors resonate upward, and trade and share the same dance.

The safety margin bottomed out, and the valuation center rose, which is different from market expectations: 1) The company's commercial thermal management business growth creates an adequate safety margin: Assuming that the 2024-2026 numbers and energy thermal management business targets are 100%/50%/0%, respectively, the three-year compound increase in net profit to the mother is 30.4%/25.8%/20.9%, respectively. The automotive business brings a clear valuation safety margin, and the third growth curve can be expected. Furthermore, considering the pace of expansion of major customer model platforms in North America, 2024-2026 is a low point in the company's compound profit growth rate, and it is expected to enter the next stage of global growth in the future. 2) The company's valuation center is showing a systematic upward trend, and passenger cars are overtaking the valuation center: Silver Wheel's valuation level is historically low at about 10 times, due to the high proportion of commercial vehicles. Today, passenger cars account for more than half of the total, and the company's valuation center is facing a systemic upward trend. 3) There are individual differences between the company and a typical Tesla industry chain company: commercial vehicles and diversified businesses account for a high current share and high long-term space; in terms of raw materials and shipping, exports account for relatively small shipping, and the hedging of steel prices and aluminum prices; in addition, the company's overseas layout has been completed, the local factory in North America and Mexico has achieved a break-even balance, and the first year of internationalization of production capacity has begun.

Valuation and profit forecast: The company is expected to achieve operating income of 131.41, 158.96, and 19.118 billion yuan in 2024-2026, up 19.27%, 19.27% year-on-year. Net profit from 2024-2026 was 8.27 billion yuan, 11.31 billion yuan, and 1,360 billion yuan, respectively. The corresponding PE was 17, 13, and 11 times, respectively, giving it a “Highly Recommended” rating.

Risk warning: Risk of technology application falling short of expectations, increased risk of industry competition, and risk of rising raw material prices.