Innovation-driven industry leader with steady growth in performance

The company's main products include general belt conveyors, tubular belt conveyors, horizontal turning belt conveyors, backstop devices, driving devices, etc. Revenue and profitability increased steadily, achieving revenue of 1.053 billion yuan in 2023, an increase of 15.2% over the previous year. Net profit to mother reached 0.102 billion yuan, an increase of 18.58% year over year.

The boom in the downstream industry creates future growth momentum

1) China's transportation machinery industry is booming, and technological progress is driving the rapid rise of the industry. As industrialization and urbanization advance, demand in the transportation machinery market continues to grow, especially in industries such as coal, electricity, metallurgy, ports and mines.

3) Since 2019, in a situation where domestic port operations, mining projects, and power plant power generation have continuously improved the safety and environmental protection of production processes, China's transportation machinery industry has developed steadily, and the market size has continued to expand.

In 2023, China's transportation machinery market size is about 53 billion yuan. Among them, belt conveying machinery is the main segment of the industry, and its market size is about 28.6 billion yuan. Competition in the industry is fierce, and concentration may increase in the future.

AI and exports have become new driving forces for the company's growth

1) In July 2024, Yunji Group and Huawei signed the “Comprehensive Cooperation Agreement between Sichuan Zigong Transportation Machinery Group Co., Ltd. and Huawei Technology Co., Ltd.” Through products and professional services, Huawei will provide support in joint solution design, global ecological cooperation, large-scale model assistance development, and talent training and technical support to enable Yunji Group to build intelligent equipment manufacturing capabilities and integrated and service capabilities for “ore flow” full-scenario digital intelligence solutions, deeply integrate large artificial intelligence models with mining, bulk material transportation ports, equipment manufacturing and other industries, and jointly build leading artificial intelligence solutions.

2) The company's wholly-owned Australian subsidiary, VLI CONVEYORS INDUSTRIAL TECHNOLOGY PTY LTD (Wiley Transportation Industry Technology Co., Ltd.), signed a “Share Purchase Agreement” with VLI Pty Limited (Wiley Limited) in June 2024. Australian Sun Company purchased VLI CONVEYORS PTY LIMITED (Wiley Conveyors) and Uni-Rod Pty held by Wiley Limited for 8 million Australian dollars Ltd (Uni-Rod), Tyton Conveyors Pty. Limited (Tyton) has 100% of its shares and related intellectual property rights. After the transaction is completed, Australia's Sun Company will hold 100% of the target company's shares, and the target company will become the company's wholly-owned holding company, which will be included in the scope of the company's consolidated statements.

Investment advice: We forecast the company's 24-26 revenue of 1.743/2.535/3.389 billion yuan, 24-26 net profit of 0.185, 0.273, 0.383 billion yuan, and EPS of 1.16, 1.70, and 2.39 yuan, corresponding to the closing price of 26.32 yuan/share on July 18, 2024. PE is 23.08, 15.64, and 11.13 times, respectively. We selected comparable companies Hengwei Technology, Huadian Heavy Industries, Softcom Power, and Jiulian Technology. As of July 18, 2024, the average PE of the industry in 2024 was 32.15, and the company's valuation level was lower than the industry average. Considering the certainty of the company going overseas and the new momentum of AI, there was huge room for imagination. It covered for the first time, and gave it a “buy” rating.

Risk warning: Policy implementation falls short of expectations; technological development falls short of expectations; macro demand falls short of expectations.