Key points of investment:

The company is deeply involved in the refrigeration field and is actively developing the automotive heat management parts business. The company's refrigeration parts manufacturing business includes refrigeration valves, heat exchangers and pressure vessels in the fields of household and commercial air conditioning, heat pumps, refrigeration, and thermal management of new energy vehicles; the equipment manufacturing business includes commercial air conditioning and special air conditioning and cold chain equipment in the fields of nuclear power, purification, communications, rail transit, etc. The company is a leading global enterprise in the refrigeration components industry. It is also a strategic partner of many well-known air conditioning manufacturers at home and abroad. The production and sales of major products rank among the highest in the world. At the same time, based on technology accumulation in the field of refrigeration components, the company expanded into the field of thermal management for NEVs, providing products such as thermal management valves for NEVs, creating a second growth curve.

Driven by the trade-in policy, demand for refrigeration components may be booming, according to industry online data. Both domestic and foreign sales of the 2024Q1 air conditioning industry maintained strong growth. Among them, domestic sales in Q1 increased 17% year on year, and export sales increased 22% year on year. On March 7, 2024, the State Council issued a notice on the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-in” to support home appliance sales enterprises to jointly carry out trade-in promotion activities with manufacturers and recycling companies, and set up online and offline home appliance trade-in zones to give discounts to consumers who trade in used appliances for energy-saving appliances. Places that are in a position to do so are encouraged to subsidize the purchase of green smart home appliances. Accelerate the implementation of actions to improve after-sales service for home appliances. We believe that there are currently a large number of overdue household appliances in China, particularly large appliances such as air ice washers. The introduction of trade-in subsidy policies may help drive the rapid fulfillment of trade-in demand. Staying active on the retail side will also drive the continuation of the boom on the shipping side, which in turn will lead to demand for upstream components, especially refrigeration components such as electronic expansion valves, four-way valves, and stop valves. Furthermore, the recovery in export sales of air conditioners may verify that the removal of overseas household appliances from inventory has come to an end, and once the inventory replenishment cycle begins, it can also drive demand for parts.

In recent years, the penetration rate of new energy vehicles has increased rapidly. Thermal management components have entered a growth period. In recent years, the penetration rate of new energy vehicles has increased rapidly, and thermal management components have entered a growth period.

According to Guanyanxia estimates, the scale of the thermal management market in China's automobile industry was 68.7 billion yuan in 2021, and is expected to grow to 149.4 billion yuan in 2025, which will also drive demand for components represented by electronic expansion valves and large diameter valves. Dunan has technical advantages in the field of automotive thermal management components, and is expected to become the second curve by establishing extensive customer resources for car companies.

Profit forecasting and investment advice

1) The company's net profit for 24-26 is expected to be 954/11.51 billion yuan, or +29%/21%/15% year-on-year, respectively. We use the comparable company valuation method. According to iFind's consistent profit forecast, the average PE value of comparable companies in 2024-2025 was 18.3/15.2 times, respectively, higher than the company's 12.4/10.3 times. Considering that the company's refrigeration parts business is expected to benefit from the trade-in policy, the automotive thermal management business is about to enter the volume stage, covered for the first time, and given a “buy” rating.

Risk warning

Industry demand falls short of expectations, raw material prices have risen sharply, competition has deteriorated, foreign trade policy risks, etc.