Matters:

The company recently announced the 2024 restricted stock incentive plan (draft). It plans to grant a total of 17.17 million Class II restricted shares to incentive recipients, accounting for 4.28% of the company's total share capital when the draft incentive plan was announced. The equity incentive program targets a total of 171 people, covering the company's directors, executives and core personnel. The purpose of the plan is to attract and retain outstanding management talents and core talents by establishing and improving a sharing mechanism between company employees and owners, further stimulate the company's innovative vitality, and inject new impetus into the company's continuous and rapid development.

Commentary:

Shares were repurchased for the first time since listing. Repurchase shares are used for equity incentives to help the company develop in the long term. Since the company went public, only one repurchase was carried out. The 19th meeting of the 6th board of directors was held on February 27, 2024, and it was agreed that the company would use its own funds to repurchase the company's shares through centralized bidding transactions for employee stock ownership plans or equity incentive plans. The total capital for this share repurchase is not less than (inclusive) RMB 30 million and no more than RMB 60 million (inclusive). The repurchase of shares is used for equity incentives, which helps to further improve the company's long-term incentive mechanism, enhance team cohesion, and promote the company's long-term, stable and sustainable development.

The scope of equity incentives is clear and the purpose is clear to help the company overcome difficulties. According to the company's “2024 Restricted Stock Incentive Plan (Draft)”, the stock incentive plan assessment period is 3 years, and the company's 2024-2026 net profit and growth rate were assessed. The trigger value was based on 2023 net profit. The net profit growth rate for 2024-2026 was 123.95%/157.55%/196.18%, respectively, and net profit was 175/2.01/231 million yuan, respectively, reflecting the company's firm confidence in subsequent business development. The incentive plan targets a total of 171 people, accounting for 3.5% of the company's total number of 4,840 employees (as of December 31, 2023). The scope of the incentive plan is concentrated, including company and subsidiary directors, senior managers, core managers and core key personnel. It will strongly attract and retain outstanding talents, fully mobilize the enthusiasm of core employees, affirm core employees to help the company overcome difficult times, and encourage employees to improve the company's operating efficiency and help the company overcome difficulties.

Grasp the core product market, promote new energy cooperation, and expand the humanoid robot business. The company's core product, the HDM seat horizontal driver, is at the leading level in China. The customer base includes well-known first-class suppliers such as Faurecia, Lear, and Andorra, as well as terminal car companies such as BYD, Changan, Geely, Great Wall, GAC, Chery, GM, Nissan, Xiaopeng, Ideal, and NIO. Binding high-quality customers is expected to boost the company's performance growth. The performance of the NEV electric drive and transmission business has improved. As the domestic NEV market is expected to expand, the penetration rate continues to rise, and the NEV related business is expected to become the company's second growth point. The company gave full play to process synergy, entered the field of automotive ball screws and humanoid robot roller screws, and expanded profits in multiple industries.

Investment proposal: The company is deeply involved in the basic automotive parts and wheel bearing manufacturing business. Reducing losses and improving performance for new energy electric drive systems and transmissions. Continued investment in R&D and innovation after entering the new energy circuit is expected to start a second growth curve. Entering the screw industry in 2024 is expected to further achieve business breakthroughs and achieve long-term development. We forecast that the company's revenue for 2024-2026 will be 46.84/53.00/5.744 billion yuan, respectively, up 13.2%/13.1%/8.4% year-on-year; net profit to mother will be 2.94/3.72/408 million yuan, respectively. Referring to comparable company valuations, we gave the company 20x PE in 2024, corresponding to a target price of 14.66 yuan, maintaining a “strong push” rating.

Risk warning: The company's business line is expanding rapidly, and the fundamental business is affected; the competitive pattern in the new energy market is intensifying; new product development falls short of expectations.