Core views

The company is deeply involved in the field of civil electricians and has formed three main businesses: electrical connection/smart electrical lighting/new energy. Electric connection products are mainly converters (that is, sockets), digital accessories, etc. Smart electrical lighting products mainly include wall switches and sockets, LED lighting (smart headlights), safety circuit breakers, smart shower bars, smart door locks, smart clothes dryers, smart curtain machines, etc. New energy products are mainly NEV charging piles/guns, household energy storage, industrial and commercial energy storage, outdoor portable energy storage, etc. In '23, the electric connection/smart electric lighting/new energy sector achieved revenue of 7.4/7.9/0.38 billion yuan, YoY +5%/15%/149%, respectively. Looking forward to the future, the company still has a lot of room for development in the smart electric lighting and new energy business, and the growth of converters depends more on the increase in the unit price of the product.

Innovatively implement an offline “distribution and marketing” sales model, establish an offline physical distribution channel of over 1.1 million, and a stable dealer team to help it achieve steady growth in the downturn real estate cycle.

The company integrates the manufacturing industry with the service industry. Through training, support and in-depth services for dealers, the company organizes dealers across the country to be equipped with special vehicles within their distribution area, and is equipped with professional sales service personnel to regularly carry out delivery, delivery, visit services and door-to-door sales according to the network layout and established routes. More than 0.75 million hardware channel sales points (including hardware stores, Japanese grocery stores, office supply stores, supermarkets, etc.), 0.12 million professional decoration and lighting channel sales points, and 0.25 million digital accessories channel sales points have been established nationwide. The extensive layout of terminal outlets can provide consumers with quality services and products in a timely and convenient manner. Furthermore, loyal and dynamic dealers are another moat for the company. The company has set up corresponding incentive measures such as sales discounts, market development discounts, and marketing discounts to achieve a win-win situation with dealers. The average gross margin of dealers cooperating with the company is basically above 30%, which usually increases as the length of cooperation increases. These measures all increase the stickiness of dealers.

The electrical connection business is the cornerstone of performance, and the growth attributes of the smart electrical lighting business are even more prominent. In '23, the company's electrical connectivity business achieved revenue of 7.4 billion yuan, YoY +5%. The company is a leader in the converter industry, and its market share has increased from about 20% in 01 to over 70% now. The driving force for future converter performance growth comes from unit price increases brought about by product innovation and changes, incremental products in response to demand in segmented scenarios, and new demand brought about by overseas market development. In '23, smart electric lighting products achieved revenue of 7.9 billion yuan, YoY +15%. In terms of the wall opening business, the company accounts for about 30% of the Tmall market, and there is still plenty of room for improvement. The basic light source business has gradually improved space lighting solutions for small and medium-sized engineering projects and small to medium industrial and commercial users after home lighting. Smart headlights have also become a key development direction in the company's lighting business. Among them, Muguang brand headlights are committed to providing consumers with integrated smart lighting solutions, and the company has high expectations for them.

The new energy business is expected to continue to grow rapidly. The company's new energy business generated YoY +149% in 23 years. On the product side, it provides C-side consumers and B-side operators with charging piles/guns that can meet their needs, drawing on previous successful experiences on the converter/smart electrical lighting channel side, and quickly laying out dealer channels. The C-side channel focuses on expanding professional distributors such as new energy auto trade stores and car beauty and decoration stores. The B-side channel focuses on customer development covering scenarios such as institutions, enterprises, properties, and charging stations.

Investment advice

As a leader in the civilian electrical industry, the company's offline distribution channel moat advantage is difficult to shake, ensuring the steady growth of the electrical connection and wall opening business. The new layout of the new energy and overseas business is expected to continue to bring the company a second growth curve. We expect the company's net profit to be 4.4/5/5.6 billion yuan in 24-26, corresponding to EPS 3.4/3.84/4.34 yuan, corresponding to PE 18.5/16.36/14.51, according to the closing price on September 6. It was covered for the first time, giving it a “buy” rating.

Risk warning

The risk of macroeconomic growth slowing; the risk of new business development falling short of expectations; the risk of price fluctuations of major raw materials;