Key points of investment:

The world's leading supplier of aerodynamics and cleaning equipment, with overseas retail customers as its main customer base. The company mainly exports and exports small air compressors and wet and dry vacuum cleaners, mainly to North America (accounting for 83% in 2020). After years of R&D and design accumulation, the share of pure OEM OEM business gradually declined, and with the full development and smooth cooperation experience of overseas retailers and other channels, the share of high-margin brand licensing and OBM business increased by 12.2/2.7 pcts from 30.7%/0.6% in 2018, driving the company's gross margin to 35.8%. Continued breakthroughs in the company's core technology, stable overseas customers, and continuous breakthroughs from major customers such as Home Depot drive the company's revenue and performance.

The global inventory of small household appliances returned to normal levels after going through a dewarehousing cycle. 2020H2 By 2022H1, global inventory of small household appliances increased and peaked. The 2022H2 inventory removal cycle began. By November 2023, retail inventory of furniture and household appliances in the US fell to 28.27 billion US dollars, and the inventory to sales ratio fell to 1.52, entering a normal range. Demand from Europe and the US has recovered since 2024H1, and the inventory replenishment cycle has begun. The company's downstream customers are mainly retailers and leading international small home appliance companies. Demand is highly correlated with inventory levels, compounded by the strong resilience of the US economic growth, and the company has benefited deeply.

The brand authorization model has stable major customers, the ODM model has strong R&D and design capabilities, and the OBM model has developed rapidly.

The company has established a stable retailer customer system and sales channels, and the warehousing center built in the United States can provide fast supporting services. Brand licensing model: European and American cleaning appliances have strong brand barriers. After years of market development, the company has obtained licenses from many internationally renowned brands in the tool industry, and has established stable cooperative relationships with dozens of internationally renowned retailers such as Walmart, Lowe's, The Home Depot, and Costco. The company also has overseas warehousing centers and professional after-sales service teams in the US, which can respond to and meet retailers' needs for product after-sales service in a timely manner. OBM model: The gross profit level is high, rising to 39% in 2023 with the development of high-end products from independent brands. ODM model: Outstanding R&D experience and technology, product quality recognized by customers. Every year, the company designs more than 50/60 products for small air compressors and wet and dry vacuum cleaners. The key components are self-made, and the direction of high added value is constantly changing. Overseas retailers and other customers have a long supplier assessment cycle and strict requirements. The company has passed many domestic and foreign standard certifications, achieved good results in the annual factory inspection and assessment, and has a perfect quality control system, which has been recognized by customers.

Profit forecasting and valuation. We expect the company to achieve net profit of 0.24/0.33/0.4 billion yuan in 2024-2026, with year-on-year increases of 38%/36%/22%, respectively. The company mainly provides brand licensing and ODM services for vacuum cleaners and air compressors for North American retailers and leading home appliance companies. They are in the same cleaning appliance sector as Fujia Co., Ltd. and are all mainly OEM businesses and are comparable. Therefore, Fujia Co., Ltd. and Dechang Co., Ltd. were selected as comparable companies. The average PE for 24 years was 19 times, and the company was 14 times larger. Taken together, the company's corresponding target market value of 4.6 billion yuan in 2024 has room for a 33% increase compared to the closing market value of 3.5 billion yuan on July 24, 2024. It was covered for the first time, giving it a “buy” rating.

Risk warning: risk of sluggish overseas demand; risk of customer development falling short of expectations; risk of exchange rate fluctuations.