Main points of investment:

Lithium electricity testing industry leader. The company is a leading domestic intelligent manufacturing solution supplier with lithium battery testing system as the core, with battery simulation testing, battery process testing and manufacturing execution system (MES) as the core to provide battery manufacturing solutions to battery manufacturing enterprises and new energy vehicle enterprises. The company developed energy storage converter (PCS) and intelligent power station control system, carried out strategic cooperation with leading enterprises in lithium battery and energy storage industry, and promoted a series of products of integrated storage, charging and inspection energy storage power station; through deep cooperation between Fujian Nebula testing, a holding subsidiary, and downstream customers, the company carried out lithium battery testing services. Through holding subsidiaries and shareholding companies to develop charging piles, operation management platform and other related products and carry out charging operation services. Customers cover power battery manufacturers (CATL, Guoxuan Hi-Tech, etc.), consumer battery manufacturers (Xin Wanda, etc.), vehicle factories (FAW, SAIC, Dongfeng, Xilai, etc.), testing institutions (Automotive Engineering Research Institute, Beijing Industrial Design and Research Institute, etc.) as well as customers in Huawei, Changdian and other fields.

The whole year of 2020 and 2021Q1 performance are growing rapidly. In 2020, the company achieved an operating income of 575 million yuan, an increase of 57.24% over the same period last year, mainly driven by lithium battery pack automatic assembly equipment (revenue 215 million yuan, year-on-year increase of 58.8%), lithium battery protection panel testing system (revenue 124 million yuan, year-on-year growth of 251.7%), testing services (revenue 45 million yuan, year-on-year growth of 99.6%) and other business The net profit of returning home for the whole year was 57 million yuan, a substantial increase of 150.6% over the same period last year. In the first quarter of 2021, the company achieved operating income of 121 million yuan, an increase of 64.91% over the same period last year, and a net profit of 20 million yuan, an increase of 729.55% over the same period last year.

The general trend of electrification, lithium business benefits from downstream expansion. Rooted in the field of lithium testing, the company's lithium battery pack automatic assembly equipment, related testing equipment demand will benefit from the outbreak of power battery demand. Driven by both supply and demand factors, with the participation of the government, car enterprises (traditional car enterprises / new forces / cross-border car manufacturing) and consumers, the general trend of electrification has been established, and the penetration rate of electric vehicles may increase faster than expected:

1. From the point of view of demand, 1) China, Europe, the United States and other regions have introduced new electric vehicle subsidy policies; 2) promote the infrastructure construction of new energy vehicles such as charging piles and changing power stations, reduce parking fees, charge reduction and other concessions to reduce the use cost of electric vehicles, and further increase the use cost of fuel vehicles by means of license plate restrictions and traffic restrictions. 3) the policy subsidy and guidance have been strengthened, and the strength of new energy vehicle products has been strengthened. at the same time, the main group of automobile consumers has gradually changed, and the willingness to buy new energy vehicles has continued to strengthen.

2. From the supply side, 1) the continuous decline in the cost of power battery promotes the decline in the price of electric vehicle hardware; 2) driven by policies such as China's double points system and Europe's strictest carbon emission regulations, traditional car companies accelerate the layout of electrification, while the new forces hope to realize the anti-surpassing of traditional car companies through the window of electrification. 3) the catfish effect of many popular models such as Tesla promotes all manufacturers to launch more competitive models in terms of price and battery life; 4) electrification, intelligence and networking to further enhance the attractiveness of electric vehicle products.

3. The general trend of electrification continues to deepen. According to EV Sales,2021 in May, global sales of new energy passenger vehicles reached 442000, an increase of 199% over the same period last year, of which EV29.5 was 10,000, a year-on-year increase of 190%. The cumulative sales in the first five months reached 1.962 million, and the penetration rate of new energy vehicles was 5.8%. According to the China Automobile Association, the production and sales of new energy vehicles in June were 24.8 and 256000 respectively, an increase of 1.3 times and 1.4 times respectively compared with the same period last year. From January to June, the cumulative production and sales reached 1.215 million and 1.206 million respectively, a two-fold increase over the same period last year, and the penetration rate of new energy vehicles in the first half of the year was about 9.4%.

4. There is a strong demand for downstream production expansion. According to SPIR, global lithium battery shipments are expected to be 1135.4gwh in 2025, an increase of 337.5% over 2020, including power lithium battery 873.6GWH. Major power battery manufacturers at home and abroad accelerate production expansion, bringing about a burst of demand for related testing and assembly equipment. For example, the planned capacity base of Ningde Times is expected to reach production exceeding 550GWh in 2025, AVIC Lithium is expected to reach production in 2025, under construction and planning capacity of 300GWH; abroad, SKI is proposed to IPO to help achieve the 2025 200GWh capacity target, and LG new energy is expected to expand production to 260GWhWhNorthvolt planning 2030 capacity 150GWh in 2023.

The company is forward-looking and targeted layout energy storage. Recently, the National Development and Reform Commission and the National Energy Administration issued the guidance on accelerating the Development of New Energy Storage, which will realize the transformation of new energy storage from the initial stage of commercialization to large-scale development by 2025, and the installed scale will reach more than 30GWh. According to CNESA, by the end of 2020, the total capacity of China's operational energy storage projects is 35.6GW, including pumped storage 31.79GW and new energy storage 3.81GWh. According to the policy, the market space for new energy storage in the next five years is about 26.19GW, with an annual compound growth rate of 51.09%. The advantage of electrochemical energy storage is remarkable, and with the continuous decrease of battery cost, the permeability is expected to increase rapidly. According to GGII, China's energy storage battery shipments will reach 58GWh in 2020, with a compound annual growth rate of more than 30 per cent in the next four years.

In terms of energy storage business, the company is mainly oriented to the integrated charging stations of energy storage and storage, charging and inspection on the grid side. The main products include charging piles, energy storage converters and the "storage, charging and inspection integrated intelligent charging station" built on this basis. Recently, the first "multi-station fusion" supercharging station in Fujian Province, which is jointly operated by the company, Ningde era, Times Nebula and State Grid Electric, has been officially put into operation. The company has decided to increase the investment project of new energy automobile battery intelligent manufacturing equipment and intelligent power station converter control system industrialization project (total investment 470 million yuan, fixed increase of 230 million yuan), with an estimated annual output of 120 sets of energy storage converters (PCS), 8000 UPS converters and 1100 sets of charging piles.

Deep ploughing big customers, lithium electricity, energy storage business is expected to develop rapidly. The company's customers include power batteries, consumer batteries, vehicle factories, testing institutes and other institutions. The company ploughs Ningde era and other major customers, and is expected to achieve common development with them: 1) the business relationship between the company and Ningde era is stable. From the beginning of the year to December 10, 2020, the cumulative contract between the company and Ningde Times and its holding subsidiaries reached 215 million yuan. as of May 11, the company signed purchase orders totaling 127 million yuan in 2021. From 2017 to 2019, the company's sales to the Ningde era and its holding subsidiaries accounted for 6.93%, 39.51% and 39.85% of the main business income, respectively. 2) Ningde Times shares in the company, the company plans to raise no more than 400 million yuan in private offerings in 2020. Ningde era subscribed 3.096 million shares through Fujian Mindong era rural investment and development partnership, totaling about 100 million yuan. 3) the company and Ningde Times jointly set up time Nebula, the joint venture company ploughs the field of energy storage, the integrated intelligent power station of landscape storage, charging and testing, home intelligent backup power system, base station intelligent backup power system and so on.

Ningde era is the global leader of power lithium battery, with a stable market share in the top two places in the world. In 2025, the planned battery capacity exceeds 550Gwh, releases the development of sodium ion battery plus code energy storage, and implements the development strategy of "fixed fossil energy substitution with renewable energy and energy storage as the core, mobile fossil energy substitution with power battery as the core, and application scene with electrification and intelligence as the core". By means of shareholding and setting up a joint venture company, the company and Ningde era are deeply bound in power and energy storage business, and lithium electricity testing and energy storage business is expected to lay a foundation for the company's sustained and rapid development.

Investment advice: the company has advanced technology, rich products and high quality customers, and is expected to maintain a rapid growth rate in the future:

1) with the deepening of the electrification trend, the demand for power batteries continues to increase, and with the competitive advantage in the lithium detection equipment industry, the company will benefit from the rapid expansion of downstream customers; 2) after the landing of the policy, electrochemical energy storage will grow rapidly in the next five years, and the company's forward-looking layout, PCS, charging piles and other business are expected to grow rapidly in the future; 3) deeply bound to the Ningde era, the company is expected to develop rapidly with key customers. We estimate that the company's income from 2021 to 2023 will be 786 million yuan, 1.086 billion yuan and 1.378 billion yuan, and the net profit will be 98 million yuan, 169 million yuan and 236 million yuan respectively. The EPS will be 0.66 yuan per share, 1.14 yuan per share and 1.60 yuan per share, and the corresponding PE will be 83x, 48x and 35x respectively. Cover for the first time, giving a "buy" rating.

Risk hint: the risk that the iteration of technology update is not as fast as expected, the risk that the penetration rate of new energy vehicles is not as fast as expected, and the risk that the popularization of energy storage is not as fast as expected.