Introduction to this report:

The company's 2024 mid-year report is in line with expectations. The Minsheng Gear sector performed well, continuously expanding the fields of smart office, smart cars, smart homes and future living, and accelerating the deployment of intelligent driving mechanisms.

Key points of investment:

Maintain the increase rating and maintain the target price of $33.04. Maintain the 2024-2026 EPS forecast of 1.24/1.61/1.94 yuan, consider the company's leading position in the industry, accelerate overseas expansion, and the valuation level is higher than the industry average. The 2024 PE valuation is 27 times higher, the target price is maintained at 33.04 yuan, and the holding increase rating is maintained.

The interim performance forecast was in line with expectations, and the results continued to be delivered. The company predicts a profit of 0.45-0.47 billion yuan from January to June 2024, an increase of 22.1% to 27.5% year-on-year, and net profit of 0.428-0.448 billion yuan after deducting non-return mother, an increase of 25.5%-31.4% year-on-year. According to the company's mid-term performance forecast and the first quarter situation, the company's net profit for 2Q24 is expected to be 0.23-0.25 billion yuan, an increase of 16%-26% over the same period, and a 4%-13% increase. The performance is in line with expectations and continues to deliver on certified growth capacity.

New businesses continue to develop, and intelligent actuators are on a path of rapid growth. The company's subsidiary Ring Drive Technology was transformed and upgraded to the emerging field of intelligent drive mechanisms, surpassing the traditional positioning of “people's livelihood gear” and covering various fields such as smart offices, smart cars, smart homes and future life. The expansion of the smart home business led to significant revenue and profit growth, exerted synergy effects, actively expanded the smart car component drive business, and demonstrated strong development potential.

Focus on diversified development, and overseas factories help global expansion. The company focuses on a concentric diversified development strategy, focuses on high-precision gear transmission, and continuously expands product boundaries. The company's new business, Minsheng Gear, was rapidly released, with revenue of 380 million yuan in 2023, an increase of 87% over the same period. The company is building a production base in Hungary, entering and consolidating the European market, speeding up the development of overseas supply chains and sales channels, gradually improving overseas layout, and accelerating global expansion.

Risk warning: New orders fall short of expectations; capacity utilization falls short of expectations.