Core views

1) Large-scale domestic equipment upgrades and the return of the North American manufacturing industry helped the company maintain steady growth of industrial motors; 2) The trade-in policy in the home appliance industry boosted demand for upstream motors, showing an inflection point in the company's daily motor revenue; 3) Against the backdrop of strong production and sales of new energy vehicles and increasing penetration rate, the company's automobile motor business is expected to achieve a breakthrough from 1 to 10. The total estimated contract amount for 2020-2031 is 8.637 billion yuan; 4) The inflection point of the low-altitude economy policy has reached, and aeromotors are expected to be the company's high-value link in the low-altitude economy industry chain Bringing in additional volume.

Industrial motor leader, endogenous epitaxial gradually explores domestic and foreign markets

The company is a leading global motor manufacturer, and the market share of high voltage/low voltage motors ranked second and third in the world respectively. Through endogenous epitaxial market development, the company's business has covered various racetracks such as industrial motors and drives (61.96% of revenue), household motors and controls (19.99% of revenue), and electric transportation (6.24% of revenue), which are widely used in petroleum and petrochemicals, metallurgy, new energy vehicles, and low-altitude economy. According to the company's 2023 annual report, the company plans to achieve revenue of 18.012 billion yuan in 2024, a year-on-year increase of 15.71%, and net profit to mother of 1.102 billion yuan, an increase of 107.96% over the previous year.

First growth curve: the company's industrial and household motor infrastructure is stable

① Industrial motors: the cornerstone of the company, maintaining steady growth.

Domestic: According to the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-in” issued by the State Council in March 2024, the scale of investment in equipment in various fields will increase by more than 25% by 2027 compared to 2023. We believe that this round of large-scale equipment updates will drive an increase in demand for industrial motors, mainly due to the following three reasons:

1) Increment in stock: This round of equipment updates is either exploiting increments from stock, or used as a gripper to expand domestic demand;

2) Iterative replacement acceleration: This round of equipment updates requires high-end, intelligent, and green development. Combined with the “Industrial Energy Efficiency Improvement Action Plan” issued by the Ministry of Industry and Information Technology, the proportion of new high-efficiency and energy-saving motors will reach more than 70% in 2025, while the proportion of high-efficiency and energy-saving motors in service in 2023 will be 20%, and the iterative replacement of industrial motors is expected to accelerate;

3) Downstream chemicals, non-ferrous metals and other sentiment indices have risen: According to Wind data, the chemical industry sentiment index recovered from 98.50 in August 2022 to 101.10 in August 2024. The non-ferrous metals industry sentiment index rebounded from 22.10 in July 2023 to 36.70 in September 2024, and the upstream industry chain is expected to benefit.

Overseas: The Trump and Biden administrations continue to support the return of US manufacturing to drive demand for upstream equipment. As of August 2024, US manufacturing investment reached $238.262 billion, an increase of 18.32% over the previous year. The company's foreign revenue in 2023 was 5.6 billion yuan (up 1.05% year on year, accounting for 35.97%), of which the American region's revenue was 1.988 billion yuan (up 16.33% year on year, accounting for 12.77%). Investment in manufacturing construction in the US is at its peak, which will further boost upstream demand. The company has established a complete overseas marketing network system through the acquisition of Austrian ATB Group, Nanyang Explosion-Proof Group, and American General Electric's small industrial motor business, which is expected to benefit from the increase in demand for upstream equipment brought about by the return of the US manufacturing industry.

② Household motors: Demand for replacement is expected to be released under the guidance of the “trade-in” policy for home appliances. From January to September 2024, sales volume of major appliances reached 0.13 billion units, a year-on-year increase of 3.49%, and the growth rate changed from negative to positive. Since February 2024, the average price of major appliances has picked up. As of September 2024, it reached 1628.15 yuan/piece, an increase of 56.75% over the February low, and the volume and price of the home appliance industry has risen sharply. The company has been deeply involved in household motors for many years and has cooperated with many well-known domestic and foreign manufacturers, and is expected to benefit from the increase in upstream demand brought about by the recovery of the home appliance industry.

Second growth curve: Electric vehicle penetration rate continues to rise, helping the company achieve breakthroughs from 1 to 10

Driven by multiple factors such as a “price war” and stimulating consumption, China's NEV production and sales will be booming in 2024. At the same time, exports of new energy vehicles have become another important driving force for the growth of China's passenger car market. From January to September 2024, China's NEV sales reached 8.32 million vehicles, up 32.53% year on year. Among them, NEV exports reached 1.6765 million units, an increase of 33.45% year on year. Driven by the “dual carbon” background, the penetration rate of new energy vehicles is expected to continue to increase. Motors are the core components of new energy vehicles, accounting for about 7% of the value, and the fall in raw material prices has helped increase corporate profitability. The company established a joint venture with ZF, one of the world's top 500 companies, to open up an international perspective. It has formed a main pillar product and covers mainstream new energy vehicle motors. The total estimated contract amount for 2020 to 2031 is 8.637 billion yuan.

Third growth curve: As an emerging field for the company, the low-altitude economy has been gradually improved from 0 to 1. Currently, the top-level design of the low-altitude economy has been gradually improved, and the industry policy inflection point has reached. According to the “Implementation Plan for Innovative Application of General Aviation Equipment (2024-2030)” issued by the four departments, it is proposed that the low-altitude economy will drive a trillion dollar market size in 2030. As the main form of low-altitude economic aircraft, electric drapes are highly dependent on electric propulsion, and compared with traditional propulsion, they have advantages such as high reliability, economy, and low noise. The company has deployed aeronautical electric drive systems for 5 years, fully covering large, medium and small products, and has participated in the preparation of airworthiness standards and set up an environmental testing center against D0-160G, which has the advantage of airworthiness. The company cooperated with COMAC and Wofei Changhang to improve the closed commercial loop of technology, products, promotion, etc., and achieve complementary advantages.

Investment advice:

We expect the company's revenue from 2024 to 2026 to be 16.8, 18.71, and 20.94 billion yuan, respectively, up 7.9%, 11.4%, and 11.9% year-on-year, and net profit of 0.96, 1.13, and 1.38 billion yuan, respectively, with a year-on-year increase of 80.3%, 18.7%, and 21.7%, respectively. First coverage, giving a buy-A investment rating. The target price for 6 months is 18.25 yuan, which is equivalent to a dynamic price-earnings ratio of 25x in 2024.

Risk warning: risk of economic situation and geopolitical uncertainty; risk of fluctuations in raw material prices; risk of eVTOL related policies and R&D falling short of expectations; risk of profit forecasts falling short of expectations.