Deeply involved in clean electrical motors and OEM, and expand epitaxial to small household appliances and automotive EPS motors. Vacuum cleaner export OEM is the company's basic plate business. The company reached a multi-year strategic cooperation with TTI, a leading vacuum cleaner company. It began supplying vacuum cleaner motors to it in 2007 and began supplying vacuum cleaner units to it in 2012. As the company's largest customer, TTI accounted for more than 50% of sales in 2023. Based on a steady main business, the company entered the automotive EPS motor and diversified small appliance foundry field in 2017 and 2019, respectively. Small household appliances and auto parts accounted for 29.63%/7.26% of revenue in 2023. Currently, the company has formed a multi-level business pattern based on vacuum cleaners, diversified small household appliances as growth businesses, and EPS motors as a strategic business.

Core highlight 1: New customers and new categories continue to expand, and the revenue of small household appliances is expected to maintain high growth. The company has accumulated rich experience in cooperating with major customers TTI, and formulated strategic major customer cooperation routes. In 2019 and 2023, respectively, it entered the supply chain of HOT and SharkNinja, which successfully expanded the company's product categories in the home appliance sector from vacuum cleaners to personal beauty care (curling combs, hair dryers, etc.) and small household appliances (air purifiers, fans, etc.). In 2023, the company's small household appliances revenue reached 0.822 billion yuan, and the 2019-2023 CAGR reached 82.82%. There is plenty of room for cooperation with major customers. Under the trend of continuous expansion of new categories, the company's small household appliance revenue is expected to maintain a high growth rate.

Core highlight 2: The pace of automotive EPS motor release is accelerating. Currently, orders in hand are entering the fulfillment period, most of the market share of EPS motors is controlled by international companies. Domestic companies are speeding up technological breakthroughs, and there is plenty of room for domestic replacement of EPS motors. The company began research and development of automotive motor components in 2017. The main products are EPS brushless motors and brake motors. In 2022, the company successfully passed the certification of well-known domestic and foreign customers such as ZF, Nexteer, and Jetstar with its excellent technical strength. Currently, the total number of orders for Auto Zero has exceeded 5 billion yuan. The company's fund-raising project plans an automobile motor production capacity construction project with an annual production capacity of 3 million units. Currently, 8 production lines have been built, and 3 more production lines are under construction. It is expected to be completed in December this year. The company's auto parts were officially mass-produced in 2022, and revenue in 2023 has exceeded 0.2 billion yuan. As production capacity construction progresses, the company's ongoing orders have entered the fulfillment period, and the pace of auto parts business volume is expected to accelerate.

Investment suggestion: The company's vacuum cleaner foundry business is deeply cooperating with major customer TTI. The scale of the small household appliance business is expected to grow rapidly through new customers and new category expansion. Auto zero production capacity is about to be built, and on-hand orders are being fulfilled. With two-wheel drive for home appliances and auto parts, we believe the company has long-term growth potential. The company is expected to achieve revenue of 3.786/4.708/5.557 billion yuan in 2024/2025/2026, and realized a net profit of 0.415/0.519/0.641 billion yuan, corresponding EPS of 1.11/1.39/1.72 yuan, respectively, and 14x/11x/9x for PE, respectively. Covered for the first time, giving it a “Recommended” rating.

Risk warning: the risk that overseas demand for household appliances falls short of expectations; the risk of high customer concentration; the risk of production capacity construction and climbing progress falling short of expectations; the risk of exchange rate fluctuations.