Key points of investment

The leading exporter of garden tools, the leading company in the mounted lawn mower segment mainly produces and sells garden machinery, mainly lawn mowers. It has grown rapidly in recent years. The market share of mounted lawn mowers from 2021 to 2022 ranked in the top three domestic garden machinery companies. At the end of 2023, the company decided to make the intelligent business the second core business, which has great potential for future growth.

Industry: The long-term trend is growing steadily, the short-term dawn is beginning to emerge, and structurally, the process of lithium electrification is accelerating.

The medium- to long-term market space is broad, the industry is growing steadily, and the lithium electrification process is accelerating - the market space is broad and demand is growing steadily: According to Global Market Insights, the global garden equipment market is expected to reach 43.5 billion US dollars in 2025; the average compound annual growth rate from 2018 to 2025 exceeds 7.0%. The improvement in residents' quality of life and the increase in the coverage of private residential green spaces and urban greening have all contributed to the increase in demand for OPE products.

Accelerated lithium electrification process: Benefiting from the increase in lithium battery garden tool product strength and the decline in lithium battery costs to the consumer category, the lithium electrification process in the OPE market is expected to accelerate. The CAGR for cordless OPE/gasoline OPE in 2021-2025 is 8.8%/4.9%, respectively. The company has continued to lay out the lithium battery business since 2015, and launched a new 60V lithium battery handheld product line in 2023, in line with the development trend of the industry.

Short-term inventory disturbances have been lifted, and North American real estate is at the bottom of the left, and the dawn is beginning to appear.

Inventory cycle: In the normal phase. Currently, active inventory removal from North American channels has ended. Inventory from major channels in North America declined in 2024. In July 2024, the year-on-year sales growth rate of US building materials, garden equipment and material stores was corrected, and orders are about to pick up.

North American real estate cycle: The inflection point is approaching. The downstream garden machinery industry is mainly for public landscaping, home maintenance, and logging. The recovery in real estate prosperity is expected to drive demand growth in the garden machinery industry. Currently, the US has entered a cycle of interest rate cuts. As of October 17, the US 30-year mortgage interest rate was 6.44%. With the decline in mortgage interest rates, the inflection point of US real estate is approaching, which is expected to drive industry demand growth.

Company: Expand market+increase categories to consolidate the main business, and create a second growth curve with intelligent business.

The main business prospects are good:

Market expansion: Europe -> America. The company's business area is mainly Europe. In recent years, the company has penetrated the European market and continued to explore the US market. Since 2022, the US region has made breakthroughs. Currently, the US region has made breakthrough progress. It has entered the US channel The Home Depot, Lowe's, TSC, etc., and began online sales on Amazon in the US in 2024; - Additional categories: lithium electrification+intelligence. The company follows the industry's lithium electrification trend and continues to enrich the lithium battery product line. New lithium battery products such as 60V lithium battery handheld products will be launched in 2023; the intelligent business has progressed. Unmanned lawn mower products are already in the preparation stage before mass production, and a marketing team has begun to be built, which is expected to contribute additional volume to the company.

The main business is developing rapidly. The company adopted a fixed increase to expand production capacity. In December 2023, the company issued a fixed increase plan to raise 0.52 billion yuan to build a riding lawn mower with an annual output of 0.06 million units and an annual output of 0.25 million new energy intelligent garden machinery, etc., reflecting confidence in development.

The second growth curve has huge potential: At the end of 2023, the strategic layer decided to take the embody-enabled intelligence business as the second core business, invest in 1X Robotics, a star company in the humanoid robot field, and enter the humanoid robot circuit; established a subsidiary to independently develop figurative intelligence, and has now launched the four-legged robot Lingrui P1.

Profit forecasting and valuation

It is expected that the company's lawnmower and other garden machinery business will continue to grow rapidly, and the lithium battery product line and unmanned lawn mowers will rapidly expand, bringing great flexibility to the company's performance. The company is expected to achieve operating income of 0.928/1.401/1.664 billion yuan in 2024-2026, up 39%/51%/19% year on year; achieve net profit of 0.79/1.36/ 163 million yuan, up 65%/72%/19% year on year; corresponding to PE79/46/39X. Consider the growth of the company's main business and new business, and give it an “increase in wealth” rating.

Risk warning

Risk of trade friction, risk of overseas demand falling short of expectations, risk of exchange rate fluctuations.