Core views

The company has been on the market for more than three years. After product structure upgrades, the revenue share of the home appliance business (now the “HVAC business”) fell from over 60% in '21 to less than 30% in '23, while emerging businesses such as automotive electronics, industrial safety, and scientific instruments maintained rapid growth. According to our estimates, after excluding the home appliance business in '22 and '23, other businesses grew at about 80% and 42%, respectively, and developed brilliantly. The rapid decline in the share of the home appliance business has also led to a slowdown in the company's performance growth in the past two years. As the home appliance business bottoms out this year, the company's overall growth rate is expected to return to a high level, which will lead to a rise in the company's valuation.

Past performance review & future outlook:

The company's revenue growth slowed in 22 and 23, achieving year-on-year growth rates of 10.04% and 14.82% respectively. The growth rate slowed, mainly due to the high share of the home appliance business (now the “HVAC business”) and affected by the real estate industry. Demand for some of the company's businesses was high during the pandemic, and the growth rate gradually slowed after 23 years. However, the company's new business layout continued for 3 years, and the number of employees increased by 52% and 9%, respectively, compared to the previous year; according to our estimates, after excluding the home appliance business in '22 and '23, other businesses grew by about 80% and 42%, respectively, and developed brilliantly. The net profit growth rate of 22, 23, and 24Q1 declined three times in a row due to product restructuring, increased investment, increased share payment costs, and higher initial costs of putting into operation at the Jiashan Plant. We believe that this is the result of external environmental factors and the company's own continuous expansion. As the home appliance business bottoms out and the company's capacity utilization rate rises, 24Q2-Q4's business conditions will continue to improve.

There is strong certainty that the automotive electronics business is growing at a high rate. In 2023, revenue from the automotive electronics business, which mainly focuses on automotive comfort system sensors and high-temperature gas sensors, increased 36.72% year over year. Automobile comfort system sensors can monitor the concentration of gases such as PM2.5 and CO2 in the cockpit to create a visual and comfortable cockpit environment; in 2023, the fixed amount of the company's new automotive comfort system supporting sensor projects exceeded 1.4 billion yuan, and there are sufficient orders in progress. There is strong certainty that car comfort system sensors will grow rapidly in the future. 24Q1 automotive electronics business revenue increased 37.56% year on year. In terms of high temperature sensors, the engine exhaust oxygen sensor front kit has sold more than one million units. All testing and verification work for the first engine nitrogen and oxygen sensor front installation project has been completed, and it will be put on the market in batches this year.

The refrigerant leak monitoring sensor has obtained UL certification and will soon be mass produced. Recently, the company's refrigerant sensor was officially recognized by UL, becoming the first Chinese sensor company to obtain this certification. The US Innovation and Manufacturing (AIM) Act announced that for imported and domestic products, the GWP for chillers, residential, and light commercial air conditioning and heat pump systems must not exceed 700 from 2025, and the EU will also take effect in 2025, and the GWP value of split air conditioning refrigerants must not exceed the upper limit of 750. Therefore, low-GWP new refrigerants have broad application prospects. In order to avoid explosions caused by new refrigerant leaks or people suffocated due to high-pressure leaks, it is necessary to monitor possible refrigerant leaks. Refrigerant leak monitoring sensors may become standard in refrigeration systems in the future. At present, the company's refrigerant leak monitoring sensors have obtained project targets from several well-known customers and have begun batch delivery to domestic and foreign customers.

The HVAC business is expected to bottom up in 2024. In 2023, revenue from the HVAC business, which mainly focuses on civilian air quality gas sensors, fell 25.90% year on year. In 24Q1, the business fell 3.96% year on year, and the decline narrowed markedly. This year, the new “controller/detector products” developed by the company began mass production, contributing new increases. The company's controller/detector products mainly include air quality detectors and fresh air controllers. Among them, the air quality detector has a built-in high-quality air quality sensor module, which can display PM2.5, CO2, formaldehyde/VOC, temperature and humidity parameters in the air in real time, and can also be equipped with WIFI and Bluetooth communication methods; the fresh air controller has a built-in self-developed high-precision sensor module that can monitor and display the real-time measurement values of the five indoor air indicators of PM2.5, CO2, formaldehyde, temperature and humidity in real time, and cooperate with the fresh air control board to achieve the fresh air system Direct control can be widely used in residential, commercial and industrial settings, and can effectively improve air quality.

The company is a platform-based enterprise in the field of gas sensors. It has strong business scalability and benefits from increased energy saving and carbon reduction requirements. The company has formed a core gas sensing technology platform based on the principles of optics (infrared, ultraviolet, TDLAS, light scattering, laser Raman), ultrasound, MEMS metal oxide semiconductor (MOX), electrochemistry, and high-temperature solid electrolytes, which can expand its business to different fields. The company's layout and batch results in new fields have gradually emerged in recent years. Recently, the State Council issued the “2024-205 Energy Conservation and Carbon Reduction Action Plan”, which imposes further strict requirements on energy saving and carbon reduction in key areas, which will promote the development of the company's gas analysis instruments, industrial safety, and low-carbon thermal engineering businesses.

Profit forecast: The company's net profit for 2024-2025 is expected to be 190 million yuan and 288 million yuan, respectively, maintaining a “buy” rating.

Risk warning: Controller/detector products are new products starting in batches this year, contributing significantly to the revenue growth of the HVAC business. If deliveries of controller/detector products fall short of expectations, it may affect the overall growth rate of the HVAC business.

Refrigerant leak monitoring sensors will contribute greatly to revenue growth this year and next two years. If downstream customers fall short of expectations in implementing the new policy, it may affect the sales revenue of refrigerant leak monitoring sensor products.

Downstream gas analyzers include traditional industries such as iron and steel, metallurgy, petroleum and petrochemicals. Demand is relatively stable. The company continues to expand new fields and solutions. If customer development progress falls short of expectations, it may affect the growth of the gas analyzer business.

The company's ultrasonic gas meters are currently mainly in the overseas market, and the domestic market has not yet been fully opened. If the progress of major overseas customer projects falls short of expectations, it may affect the growth of the ultrasonic gas meter business.