Key points of investment:

PLC: Product line extension and industry expansion are advancing at an accelerated pace. The company is in a leading position among domestic manufacturers. In recent years, the company has relied on the advantages of small PLCs to expand into product lines such as medium-sized PLCs to help the company stabilize its dominant position in traditional industries and accelerate the expansion of industries such as 3C, photovoltaics, and semiconductors.

At the same time, the company developed the XSF series blade PLC, which has stronger expansion power and operation control capabilities, and supports multi-network integration.

Drive: Servo performance continues to improve, and frequency conversion is growing rapidly. Based on the PLC customer base, the company drives products in downstream areas such as 3C, sewing, textile printing and dyeing, printing and packaging, food and beverages, building materials, and machine tool processing.

(1) Servo: The company continues to optimize quality and applicability. The DS5C2 and DS5L2 series have better positioning accuracy and operational stability, and can be used in downstream applications such as photovoltaics, lithium batteries, semiconductors, 3C, textiles, lasers, etc.

(2) Frequency conversion: The turnover of the VH5 and VH6 series is growing rapidly.

The company recently disclosed a fixed increase plan to issue 21.28 million shares to the actual controller Li Xin at an issue price of 23.49 yuan/share. The sales period is limited to 3 years, with its own or self-raised capital. The capital raised is no more than 500 million yuan. The fund-raising projects include the second phase of the enterprise technology center construction project, marketing network and product display center construction project, etc.

The fund-raising project further enhances the company's competitiveness.

(1) Enterprise Technology Center Phase II construction project: Develop R&D experiments and industrial applications around core products such as programmable controllers and driving systems, research AMP technology, virtual simulation technology, redundant technology, robot vision imaging technology, robot vision AI algorithms, etc., and lay out core products such as large-scale programmable controllers and industry-type AI algorithm intelligent equipment. We believe it will help further enhance the competitiveness of the company's products.

(2) Marketing network construction project: The company plans to expand the coverage of the marketing network. We believe it will help increase direct sales efforts, improve the company's marketing network coverage level, and further enhance the company's competitiveness? The fixed increase shows management confidence. We believe that this fixed increase shows the confidence of the company's controlling shareholders and actual controllers in the future development of the company. The increase in the actual controller's holding ratio of the company helps to further enhance the stability of the company's control and ensure the long-term stable development of the company.

Profit forecasting and valuation. We estimate that the company's net profit for 2024-2026 will be 236 million yuan, 293 million yuan, and 369 million yuan. The corresponding EPS is 1.68 yuan, 2.09 yuan, and 2.63 yuan respectively. Referring to comparable company valuations, the company was given a 2024 PE25-30X, with a reasonable value range of 42 yuan - 50.4 yuan, maintaining a “superior to the market” rating.

Risk warning. (1) Demand in the industrial control industry falls short of expectations due to economic fluctuations; (2) Fierce market competition has led to a decline in product profitability.