Incident: On December 18, the company signed a strategic cooperation framework agreement with Luoyang Bearing and Harbin Bearing, and officially announced the establishment of the new “Lixing New Energy Technology” (NET) company, which highlights the company's long-term goal of deepening the field of new energy technology and leading the development of the industry.

A milestone in the strategic layout of the Northern Market. As established powerhouses in China's bearing industry, Luozhu and Hazhu have deep technical heritage, exquisite manufacturing technology, and extensive market influence. The company's strategic signing with Luozhu and Harbin is a strong alliance with complementary advantages and shared resources. By integrating their core strengths in technology research and development, manufacturing, and market channels, we will jointly build a more competitive and innovative industrial ecosystem to fully prepare for future market challenges and opportunities.

NET focuses on cutting-edge fields of silicon nitride ceramics and derivatives. Lixing New Energy Technology Co., Ltd. (NET) will focus on cutting-edge technology research and product development applications in silicon nitride ceramics and related derivatives. NET will be guided by market demand and driven by technological innovation, and is committed to developing efficient, reliable, and environmentally friendly solutions, covering various fields such as NEV components, precision machine tools, medical equipment, and robots. The establishment of the new NET company is a long-term strategic decision made by the company based on accurate insight into global market trends and industry development directions. It will help the company further optimize its product structure, expand its business areas, and enhance its overall competitiveness.

The ceramic ball project is progressing smoothly, and the 800V tram platform brings new opportunities. The 800V platform has gradually become the mainstream solution for electric vehicles, putting higher demands on the high speed, corrosion resistance, and insulation of motors.

Ceramic bearings may become the best choice to solve electric corrosion of bearings, and ceramic balls have great potential as their core material to replace traditional bearing steels. In 2023, the company steadily promoted the mass production process of ceramic rolling elements. It has built 2 G3 grade ceramic ball intelligent R&D production lines and 33 G5 industrial production lines (75 planned). In the future, ceramic balls will become the company's core product, which is expected to lead the replacement of domestic products.

Investment advice: The company is a leader in the domestic rolling element industry. It is actively increasing high-end categories such as ceramic rolling elements. There is huge room for localization and replacement, and it is expected that the company's performance will grow steadily. The company is expected to achieve net profit of 0.084/0.13/0.184 billion yuan in 2024-2026, corresponding to a PE of 42.4/27.4/19.3 times, maintaining an “gain” rating.

Risk warning: risk of new product development falling short of expectations, risk of changes in trade policy, risk of foreign investment, etc.