Core views

A leader in vacuum cleaners and small home appliance foundry, EPS electric machinery is building a new growth pole. The company is one of the top ten vacuum cleaner exporters in China, a green factory in Zhejiang Province, and an invisible champion cultivation enterprise in Zhejiang Province. Relying on technical advantages in the field of motors, the company deeply lays out the field of small household appliances and auto parts, focuses on customer needs, drives development through innovation, and implements the strategy of “vacuum cleaner based business, diversified small household appliances as growth business, and EPS motors as strategic business” through the path of scale, specialization and internationalization.

Vacuum cleaner exports are picking up, and diversified small household appliance businesses are gaining prominence. The company has reached strategic cooperation with leading international home appliance brands such as TTI, HOT, and SharkNinja. The products cover floor cleaning appliances, environmental household appliances, personal care appliances, etc. According to the General Administration of Customs, the cumulative export volume of vacuum cleaners from January to May 2024 was 61.94 million units (+25.2% YoY), and the cumulative export value of vacuum cleaners was 22.364 billion yuan (+13.7% YoY). By the end of 2023, the company was developing 28 new projects, covering floor cleaning appliances, environmental household appliances, personal care appliances and kitchen appliances, involving more than 100 SKUs. With the gradual commissioning of production bases in Vietnam and the steady progress of the domestic “7.34 million units of small household appliances construction project”, the scale of its home appliance business is expected to continue to grow.

The loading rate of EPS systems driven by electrification and intelligence has increased, and the company is seizing opportunities to localize EPS motors. EPS motors are the core safety parts of automobiles. Automakers and Tier 1 procurement attitudes are cautious, and mature suppliers will not switch easily. As of 2018, the import ratio of EPS motors was still 79.70%, and some domestic manufacturers have realized the localization of EPS motors. The company's EPS brushless motors and brake motors have been equipped with well-known domestic and foreign customers such as Nexteer, ZF, Jetstar, Shanghai Tongyu, and Shanghai Likrypton. As of July 10, 2024, the total lifetime amount of fixed-point projects that have been obtained is approximately $5.066 billion. By the end of 2023, in terms of production capacity for automotive EPS motors and brake motors, the company has put into mass production 8 production lines, and 3 more production lines are being installed and commissioned. The design capacity of EPS motors and brake motors exceeds 3 million units.

The company plans to participate in the establishment of “Shenzhen Humanoid Robot National Innovation Center Co., Ltd.” to extend the advantages of motors to the field of humanoid robots. According to the company's announcement, on October 24, 2023, the board of directors of the company deliberated and passed the “Proposal on Foreign Investment to Establish Joint Ventures”. The company plans to develop strategic cooperation with five industry-related enterprises to jointly build the Guangdong Humanoid Robot Innovation Center and establish “Shenzhen Humanoid Robot National Innovation Center Co., Ltd.” as the actual operating carrier of the innovation center. The registered capital of the joint venture is 65 million yuan, of which the company invested 5 million yuan, and the shareholding ratio was 7.69%. We believe that the company's EPS motors and frameless torque motors for humanoid robots are torque-precise control motors and have strong technical mobility.

Profit forecasting and investment advice

The company has benefited from the recovery in vacuum cleaner exports, domestic replacement of automotive EPS motors and brake motors, and forward-looking layout in the field of humanoid robots. As new customers and products continue to be developed, future performance is expected to continue to grow. We expect revenue for 2024-2026 to be 3.585, 4.388, and 5.27 billion yuan, respectively, with year-on-year increases of 29.2%, 22.4%, and 20.1%; net profit to mother will be 0.417, 0.519, and 0.638 billion yuan, respectively, with year-on-year increases of 29.5%, 24.5%, and 22.9%; corresponding EPS will be 1.12, 1.39, 1.71 yuan, and corresponding PE will be 14.22, 11.42, and 9.30 respectively. The first coverage gives a “buy” rating.

Risk warning

Consumer demand for home appliances fell short of expectations, raw material prices rose, delivery of new products fell short of expectations, and exchange rates fluctuated greatly.