Investment logic:

The company is a leading comprehensive solution provider for industrial temperature control in China. The downstream application scenarios are mainly in the fields of CNC machine tools and laser equipment, semiconductor manufacturing equipment, power electronics devices, energy storage systems, hydrogen energy equipment, data centers, etc.

Dongfeng's energy storage temperature control business in the passenger industry is developing rapidly: China Research Century expects China's energy storage temperature control market to reach 18.63 billion yuan by 2027. GGII predicts that the liquid cooling market share will reach around 45% in 2025. Since the company expanded its energy storage temperature control business in 2021, revenue has grown rapidly. The company's revenue in the energy storage temperature control sector was about 0.158 billion yuan in 2022, and has grown to 0.904 billion yuan in 2023, with a growth rate of 472%. Currently, the company targets leading customers and lower back customers, mainly supplying liquid cooling products, and has expanded to high-quality customers in industries such as Ningde Era, Sunshine Power, CRRC, and China Airlines. The company has gained a leading edge. With the industry growing rapidly in the future, this part of the company's business is expected to continue to develop rapidly.

The data center temperature control business can be expected in the future: the rapid development of the AI industry accelerates the advent of the data center liquid cooling era. KeZhi Consulting expects China's liquid-cooled data center market to reach 102 billion yuan by 2027. Currently, the company is actively expanding the data center temperature control business, and has developed products such as liquid-cooled CDU, chilled water units, and Feng Shui heat exchangers. The comprehensive PUE of the self-developed full-chain solution of plate liquid cooling and immersion liquid cooling can reach 1.04. The company completed the expansion phase from 0 to 1 in 2023, and is expected to start contributing revenue in 2024. The data center business is expected to relay the energy storage business in the future and become the company's second growth engine.

Rapid growth in performance and excellent customer resources: The company is in a period of rapid development. Revenue increased from 0.419 billion yuan in 2019 to 1.008 billion yuan in 2022, with a CAGR of 33.99%. In 2023, benefiting from energy storage temperature control and emissions, performance was further improved. Revenue increased 83.13% year over year to 1.845 billion yuan. In the future, as the energy storage temperature control industry continues to develop, the company's leading position is stable, and the data center temperature control business gradually expands, the company is expected to continue to develop rapidly, and the future space is broad. Furthermore, after years of practice, the company has high-quality customer resources. Downstream customers have leading market positions and high market share. Leading international/domestic suppliers have established the company's own superior market position.

Profit forecasts, valuations, and ratings

We expect the company's revenue for 2024-2026 to be 2.573/3.36/4.331 billion yuan, up 39.4%/30.6%/28.9% year on year; net profit to mother is 0.263/0.348/0.442 billion yuan, respectively, up 44.5%/32.2%/27.0% year on year; corresponding EPS is 1.56/2.07/2.63 yuan, respectively. We gave the company 24 times PE in 2024, with a target price of 37.44 yuan. First coverage, giving a “buy” investment rating.

Risk warning

There is a risk that the ban will be lifted for a large amount of money, increased market competition, demand for AI servers will fall short of expectations, and the price of lithium batteries will fall.