Key points of investment:
The leading position in precision temperature control is stable, and gross margin is at the forefront of the industry. Invec's core business computer room temperature control and cabinet temperature control grew steadily, with year-on-year increases of 13.83% and 33.00%, respectively, in 2023. The company actively improved operational efficiency and nurtured new businesses. Overall business performance reached a new high, and continued revenue and profit growth for more than 10 years. The gross margins for 2020-2023 were 32.43%, 29.35%, 29.81%, and 32.35%, respectively.
AIGC brings cooling requirements, and “dual carbon” promotes the upgrading of temperature control technology. New application scenarios such as AI have promoted improvements in chip performance and server power, and placed more stringent requirements on temperature control technology. Liquid cooling solutions are expected to become mainstream in the future to improve computing power by breaking through heat dissipation constraints. Under the “dual carbon” situation, the policy requires that the PUE of large data centers fall below 1.3 in 2025, and demand for temperature control systems is expected to undergo structural changes, leading to new business growth.
The scale of energy storage temperature control continues to expand, and the proportion of liquid cooling is gradually increasing. In addition to having a better heat dissipation effect, liquid cooling can also improve the working efficiency and lifespan of battery systems, and can be applied to various complex environments. Currently, large-scale energy storage systems have a trend of switching from air cooling to liquid cooling. The penetration rate of liquid cooling has increased, and Invek's advance layout in liquid cooling is expected to bring about monetization of performance.
The company's product line is perfect, and the whole chain's independent technology stabilizes its position in the industry. In the computer room sector, the company launched the Coolinside liquid cooling cabinet and full-chain liquid cooling solution; in the cabinet segment, the BattCool Energy Storage Full Chain Liquid Cooling Solution 2.0 was publicly announced, further enriching the product chain. The company's full-chain layout in the field of temperature control helps provide customers with targeted and personalized solutions. It has a competitive advantage in the current context of rapid expansion and iteration of intelligent computing and AI servers and upgrading of temperature control technology.
Investment strategies and ratings. We expect the company's 2024-2026 EPS to be 0.75 yuan, 0.94 yuan, and 1.11 yuan respectively. According to comparable company valuations, we will give the company 35-40 times PE in 2024, with a reasonable value range of 26.40-30.17 yuan/share, giving it a “superior to the market” rating.
Risk warning. (1) Increased market competition. (2) New business development is unfavorable. (3) Changes in national industrial policy. (4) Downstream demand falls short of expectations.