Key points of investment:
Wolong Electric Drive, a global motor leader that continues to promote technological innovation and market expansion, is a leader in the global motor industry. Combining endogenous growth with epitaxial mergers and acquisitions, it has achieved diversified business development. The company's equity structure is a combination of family holdings and state-owned assets. The founder team has a deep background in the automation industry and rich technical and management experience. The company's performance grew steadily. In 2023, it achieved revenue of 15.567 billion yuan, net profit to mother of 530 million yuan, and revenue in the American region of 1.99 billion yuan, +16.39% over the same period last year. Revenue from Europe and Africa fell slightly to 2.79 billion yuan, accounting for 36% of overseas revenue, and has a competitive advantage in the global motor and new energy market.
Leading the layout of eVTOL power systems and technology+market construction. Compared with traditional helicopters, drones, etc., eVTOL has the advantages of not requiring a runway for take-off, high safety, low noise, zero emissions, easy maintenance, and low cost after large-scale operation. The low-altitude economy promotion order is “drone express delivery → drone industry application → eVTOL carrier → eVTOL manned vehicle”; the eVTOL industrialization promotion order is “policy/planning → air traffic control/infrastructure pioneering → route pilot”. We believe that industrial catalysts include: ① advancing airspace reform; ② top-level design and local emphasis on the low-altitude economy as a new growth engine; ③ acceleration of the airworthiness certification process. Driven by follow-up policies and joint efforts of manufacturers, drone freight has become the fastest commercial operation scenario in the low-altitude economy with its low cost and high efficiency advantages. Wolong Electric Drive has technological leadership: it has established the only airworthiness laboratory in the entire industry, and has taken the lead in preparing the aviation CS-23 H1801 (motor and drive system) Civil Aviation Administration certification documents. Relying on the mature foundation of power electric drives, it has developed a high-performance aviation electric drive to form a “3+1” product layout. Market leadership: Cooperate with industry leaders such as Wanfeng Aowei, COMAC, Geek Air, and Wofei, and continue in-depth cooperation with leading companies in the industry such as Rolls-Royce.
Industrial motors are being deployed at an accelerated pace, and demand for household motors is picking up
The company has a diverse range of motors, covering 5W to 85MW product lines. Industrial motor business: Mainly high-voltage motors (used in mining, metallurgy, oil and gas, petrochemicals) and low-voltage motors (used in pumps, fans, compressors). According to HisMarkit market data, Wolong Electric Drive had an 11%/6.5% share of the global high voltage/low voltage motor market in 2020, ranking second and fourth. Looking ahead to industry drivers: Global inventories are at historically low levels, Chinese and US inventories are expected to resonate cyclically, and the company's products have global certified sales capabilities, which will benefit from demand for inventory replenishment. Household motor business: Mainly used in air conditioners, washing machines, refrigerators, small household appliances, etc. Under the low base effect, home appliance exports are expected to maintain a high growth rate. The recovery in export sales has exceeded expectations, and various departments from the top down are actively cooperating with the implementation of “large-scale equipment renewal” and “consumer goods trade-in” policies to drive demand.
Rapid growth of new energy vehicles, collaborative industrial layout of optical storage
New energy vehicle electric drive business: The iteration of models driven by intelligence+affordable fast charging supports NEV sales to maintain a high growth rate. Technical trends drive product iteration and value increase: ① kV high voltage is an inevitable trend in fast charging development; ② integration of electric drive systems; ③ increase in application penetration rate of “flat wire motor+oil cooling technology”. The competitive pattern in the various segments of the motor and electronic control assembly industry is fierce. Excluding factors tied to suppliers under OEMs, the market concentration is low, the gross margin of the industry is low, the company's cost control capabilities are strong, production bases are spread all over the world, and customers have been steadily released. Historically, there are about 8.6 billion yuan in fixed-point contracts. PV business: Prices in the industrial chain have declined, and cost reduction has stimulated installed capacity to exceed expectations. The subsidiary Longneng Electric Power has a cumulative grid-connected installed capacity of 310.48 MW, achieving revenue of 306 million yuan and net profit of 81 million yuan in 2023.
Energy storage business: The share of the power grid side and demand for frequency modulation have increased. The company joined hands with Muyuan to lay out the optical storage field, has a full-scenario energy storage product matrix, and the product technology has been recognized.
Profit forecasting and investment advice
We expect the company's net profit to be 10.9/13.2/1.57 billion yuan in 2024 to 2026, an increase of 106%/21%/19% year over year. The PE valuation corresponding to the current stock price is 16/13/11 times, respectively, and the corresponding EPS is 0.8/1.0/1.2 yuan per share, respectively. As a leader in industrial motors, the company is expected to boost demand as the economy recovers, and will focus on leading the layout of eVTOL power systems to build all-round barriers with technology+market. We gave it 25 times PE in 2024, corresponding to a target price of 20.83 yuan/share, and gave it a “buy” rating for the first time.
Risk warning
The risk of uncertain global political and economic situations, the risk of industrial companies' profits falling short of expectations, the risk of uncertain development of low-altitude industries such as eVTOL, and the risk of product and customer expansion falling short of expectations.