The company is a leader in traditional precision components in China, and is also entering the race track for components such as new energy iron-lithium cathode materials and intelligent electronic control for new energy vehicles. The company's performance in '23 was affected by a sharp drop in lithium carbonate prices. Since '24, as lithium prices stabilized and shipments of the company's new high-density products accelerated, the lithium iron materials business ushered in a profit inflection point since Q3. We are optimistic that the company's LiFe+Auto Zero business will go hand in hand to achieve two-wheel drive, guarantee long-term performance growth, and maintain a “buy” rating.

Traditional components provide a basic profit market. Intelligent electronic control and incremental components accelerated the steady growth of the company's traditional parts business from 19-23, with a revenue CAGR of 5.2%. The company actively seeks the traditional overseas export business of mainstream domestic brands to consolidate its market share. We expect the traditional parts business to grow steadily in the next few years. The company has solid technology and layout in the new energy vehicle auto zero business, and has deep cooperation with leading customers such as downstream SAIC, Guangzhou Automobile, BYD, Huawei, United Electronics, Geely, Great Wall, and Wei Xiaoli. The company closely follows the pace of intelligent and electrification transformation of new energy vehicles, and the new energy intelligent electronic control and incremental parts business is expected to achieve rapid growth.

Lithium iron differentiates its positioning in the middle and high-end markets. In-depth upstream and downstream cooperation guarantees performance growth. The company originally used the solid phase method and ferrous oxalate to produce lithium iron phosphate. The product has high compaction density and low cycle attenuation; it also continues to meet downstream middle and high-end demand through R&D and innovation, and launch lithium iron phosphate fast charging products in line with the fast charging trend in the NEV industry, and the rate of increase in shipment volume is remarkable. The company's downstream cooperated deeply with its major customer, Ningde Times. The company signed an agreement with Ningde in August '24 and received an order of at least 0.14 million tons of lithium iron phosphate materials per year for 25-27, providing strong support for the company's shipments. In terms of integration, the company actively lays out raw materials such as lithium and phosphorus to ensure stable supply of raw materials and promote cost reduction.

Actively lay out the humanoid robot industry and further extend the precision intelligent manufacturing industry. Automobile reducers and robot reducers have basic conditions for transformation and common use in precision machining technology and related equipment such as precision gears. Based on the manufacturing experience of automotive parts, the company is expanding into the field of humanoid robots, which is expected to open up room for growth. In October '24, the company announced that it plans to establish a joint venture with Zhiyuan Robotics and others to jointly develop humanoid robot market applications. The company has expanded electric joint products for harmonic reducers and planetary reducer platforms. Prototype solutions have been completed and small-batch production is being carried out.

Profit forecasting and valuation

We expect the company's net profit for 24-26 to be 0.444/0.962/1.2 billion yuan, and the 25-year net profit for lithium iron phosphate and auto parts and accessories businesses will be 0.42/0.542 billion yuan, respectively. Referring to the lithium iron phosphate materials and auto parts and accessories business, the company's 25-year Wind agreed that the average PE value was 31.3x/25.5x. The two businesses were each given 31.3x/25.5x PE in 2025, with a target price of 22.10 yuan, maintaining a “buy” rating.

Risk warning: Downstream NEV sales fall short of expectations; risk of large fluctuations in raw material prices; profitability falls short of expectations due to increased competition in the industry.