Investment highlights

For the first time, it covered Rujing Technology (301525) to outperform the industry. The target price was 60.00 yuan. Based on the PE valuation method, corresponding to 25.0/19.1x in 2024/25, the company is the leading thermal management controller. The reasons are as follows:

The company is an industry leader in the field of inverter energy-saving controllers. It has a deep grasp of major customers and continues to expand into the automotive and industrial control fields under the same technology. The company was founded in 2003 and has always focused on the field of power electronics and motor control with strong attributes. The company continues to provide certain customized services based on customers' individual needs such as product technical parameters, operating environment, and functional characteristics. Under long-term deep industry cultivation, it has successively broken through leading international customers such as Emerson, Mitsubishi Heavy Industries, Bosch, and Haier, and enjoyed development dividends in domestic and foreign markets with leading customers.

The company expands the thermal management circuit for new energy vehicles, binds leading customers, and has grown rapidly in recent years. Relying on HVAC heat management technology, the company entered the field of automotive thermal management in 2017. The company maintains stable cooperation with Tier 1 compressor suppliers such as Huayu Sanden and Shanghai Guangyu, and PTC suppliers such as Kobole. Among them, Huayu Sandian's downstream customers include leading brands such as Tesla, Celis, Great Wall Motor, Geely Automobile, and Changan Automobile. Since 2020-1H24, the company's automotive business has continued to achieve a year-on-year increase of around 70-100%.

The company is actively expanding into the field of industrial control and is expected to contribute to new growth poles in the future. Since the company launched its first servo system product, Smart-A2, in 2014, the company has formed various series of servo products such as SMART, HERO, and MACAN by 2023. The business was smaller in 2024 and is still growing.

The heat pump storage cycle has bottomed out, and the company's downstream is expected to gradually pick up. The sharp rise in European gas prices during the period 2020-2022 led to a high increase in export demand, including heat pumps and household storage, but in 2023, due to the fall in natural gas prices, related industries also entered the storage cycle, and the company's heat pump related business also declined sharply in 2023. According to data from the General Administration of Customs, the year-on-year growth rate of China's heat pump exports began to rectify in May 2024, and the year-on-year increase increased to 9% in July; on the other hand, the decline in China's heat pump exports to Europe reversed from 50-60% to the same increase of 2% in July. We think European heat pump storage is gradually coming to an end.

What is our biggest difference from the market? Most of the market is worried about the sustainability of the company's performance growth due to the performance of the past 1-2 years, but we believe that the heat pump business is nearing its end. At the same time, the rapid growth of the automobile business has contributed new momentum. The industrial control business is also in a period of rapid development, and the company is expected to usher in a new growth cycle.

Potential catalysts: heat pump export demand continues to improve, automotive industry shipments exceed expectations, industrial control demand increases profit forecasting and valuation

We expect the company's 2024-25 EPS to be 2.40/3.14 yuan, and the CAGR is 17%, respectively. The current stock price corresponds to a 2024/25 price-earnings ratio of 21.9x/16.8x. Considering the gradual end of the company's downstream heat pump storage cycle and the rapid growth of the NEV business, we gave the company a certain valuation premium, gave the company a target price of 60 yuan corresponding to a price-earnings ratio of 25.0/19.1x in 2024/25. For the first time, coverage gave it a rating of outperforming the industry. The target price has room for 14.0% increase compared to the current stock price.

risks

The heat pump storage cycle fluctuates, industry competition intensifies, overseas demand fluctuates, and cash flow from operating activities fluctuates.