A leader in intelligent manufacturing, ushered in major opportunities under industrial intelligence. The company was founded in 1999. Relying on industrial advantages, forward-looking strategic development and a rich customer base, the company expanded from a unit-level automatic control system to promote industrial software at the workshop level and down to supporting instruments and instruments at the equipment level, becoming an overall solution provider for intelligent manufacturing with a complete product spectrum. The compound growth rate of the company's revenue in 2019-2023 was 35.77%, and the compound growth rate of net profit to mother was 31.77%. In recent years, the market share of core products increased dramatically. According to the company announcement, in 2023, DCS had the highest market share for 13 consecutive years, and APC, SIS, MES, OTS, etc. also achieved the highest market share in their industry segments. As products continue to iterate and expand, diversified products and services have been continuously optimized. On February 29, 2024, the company won the Saudi Aramco robotics project. In the future, it will form an overall robot solution that meets the needs of full-process, multi-scene industrial applications. On June 5, the company released the world's first general control system product, Nyx, based on the next-generation UCS architecture, and the process industry's first AI timing large model TPT, leading revolutionary innovation in control systems.

The automatic control system automates the process industry, and there is considerable space for domestic replacement of distributed automatic control systems.

Automatic control systems are the core of automation in the process industry. There are many segments. The company mainly focuses on products such as DCS/SIS. According to the manufacturing ranking database, China's DCS market size in 2023 was about 12.4 billion yuan, an increase of 11.9% over the previous year. With the steady development of the downstream market and new energy and other industries driving industry development, the market size is expected to reach 15.1 billion yuan in 2026. The localization rate in 2021 reached 55.7%.

Since China's goal is to “achieve an automatic control rate of the main production equipment of enterprises in key fields such as petrochemicals and coal chemicals to reach more than 95%” by 2025, it is expected to accelerate the localization process in the industrial automation market.

Industrial software is the foundation for achieving Industry 4.0, and “policy+industry” drives the continuous expansion of the industrial software market.

According to Guanyanxia data, the size of China's industrial software market reached 261.2 billion yuan in 2022, with an average compound growth rate of 13.58% in 2016-2022. With the vigorous promotion and widespread popularity of intelligent manufacturing and the industrial Internet, the domestic industrial software market will open up room for growth, and the industry prospects are promising. Driven by the dual “policy+industry”, the domestic industrial software market space is expected to increase further in the future. According to the world of research, the size of China's industrial software market is expected to be close to 500 billion yuan in 2030.

The business structure continues to improve, and the smooth expansion of overseas and emerging industries has opened up new growth space. From 2021 to 2023, the compound growth rate of the company's intelligent manufacturing solutions was -11%. Among them, the compound growth rate of automatic control system+industrial software was 23%, and the composite growth rate of automatic control system+instrument was 9%. Although the overall growth rate declined, the proportion of high-margin products increased, and the structure continued to improve. In 2023, the growth rates of the petrochemical and chemical industries were 29% and 24% respectively. The revenue of the battery, metallurgy, and manufacturing industries in the emerging industries increased by 463%, 63%, and 74% respectively, and the amount of new overseas contracts signed was 1 billion yuan. Emerging industries and overseas expansion was smooth. In 2023, the company achieved a year-on-year increase of more than 30% in revenue and 38% year-on-year increase in net profit, bucking the trend. Mainly thanks to the continuous consolidation of traditional business advantages and steady growth, the smooth expansion of emerging businesses achieved rapid growth.

Profit forecast and investment advice: We expect the company's 2024-2026 revenue to be 10.82 billion yuan, 13.284 billion yuan, 15.954 billion yuan, corresponding growth rates of 25.5%, 22.8%, and 20.1%; net profit to mother is 1.312 billion yuan, 1.548 billion yuan, and 1.817 billion yuan, corresponding growth rates of 19.1%, 18.0%, and 17.3%, respectively; corresponding to EPS (diluted) 1.66 yuan, 1.96 yuan, and 2.30 yuan respectively. In terms of valuation, with reference to comparable companies, we gave the company 30xPE in 2024, corresponding to a target price of 49.80 yuan, maintaining a “strong” rating.

Risk warning: macroeconomic downturn; overseas expansion falls short of expectations; R&D progress falls short of expectations; market competition is fierce; government subsidies are reduced; investment returns fall short of expectations.