A specialized and innovative “little giant” enterprise, a leading domestic replacement company for intelligent power system testing equipment, is deeply involved in the field of intelligent power testing equipment and services. It is the only domestic supplier of aero engine testing equipment. It benefits from the development of the aero engine industry and the needs of autonomy and control, and has a broad domestic alternative space. The company is also a leading enterprise in the field of power testing for new energy vehicles, fully benefiting from the development dividends of the new energy vehicle industry. It is estimated that the EPS in 21-23 will be 1.69/2.52/3.40 yuan, and PE will be 41/27/20 times. Refer to a comparable company 59 times PE in '21, giving a target price of 99.71 yuan. First coverage, purchase rating.
The development of the aero engine industry is on the fast track, and the demand for autonomous and controllable intelligent testing equipment is urgent, and the domestic aero engine testing field is heavily dependent on foreign suppliers (KAHN in the US, FroudeHofmann in the UK). Under the trend of America's “technology decoupling” from China and the internal circulation of the Chinese economy, foreign suppliers are delaying delivery or even not delivering, raising prices, and curtailing credit policies. Relying on imported equipment is a serious risk. In 2018, the company moved from repairing foreign test equipment and became the only domestic test equipment and maintenance service provider for aviation development. We estimate that China's demand for aviation inspection equipment and maintenance services will be 1.4 to 1.6 billion yuan in 20 years. If it reaches the level of US equipment, it will increase to 5.6-6.6 billion yuan in the next 15 years. In 2020, the company's aviation business revenue was 18.57 million, and more than 55 million new orders were signed from January to July this year.
Benefiting from the increase in the penetration rate of new energy vehicles and the rapid increase in demand for powertrain R&D and off-line testing, we estimate that the domestic automobile power testing equipment market was 7.7 billion yuan in 2019, mainly fuel engine testing, and was mainly monopolized by foreign investors such as Austria's AVL (revenue 1.7 billion euros in 20) and Japan's Horiba (revenue of 740 million US dollars in 19). We estimate that domestic NEV powertrain testing demand in 2020 will reach 640 million, and is expected to reach 4.06 billion yuan in 2025. Domestic testing equipment has advantages in product performance, service response, and software openness. Joint Testing is an industry-leading enterprise. The NEV testing business revenue grew at a compound rate of 51.8% from 17 to 20. Customers include SAIC, GAC, Huawei, NIO, and Denko.
Core competitiveness: The hardware performance has reached the international advanced level, and the versatility of software algorithms is strong 1) The technical barriers of power testing are more reflected in software algorithms. The software system independently developed by the company has formed a software system with completely independent intellectual property rights, reaching an advanced international level, leading domestic competitors. 2) Hardware technology: The frequency of equipment replacement is high, and the update cycle is short. In the field of aero engine testing, there are very high requirements for hardware anti-interference, test accuracy, stability, real-time responsiveness during the test process, consistency of test results, and integration technology for various accessories.
First coverage, buy-in rating
Benefiting from the rapid development of the two major industries of new energy vehicles and aero engines, the company is the only domestic supplier in the field of aviation inspection equipment. The compound net profit growth rate for the next three years is expected to reach 44% (26.8% for comparable companies). According to our profit forecast, the company's PE40.6 times in '21, and 59 times that of a comparable company in '21, was given a target price of 99.71 yuan in '21. It was covered for the first time and received a purchase rating.
Risk warning: Downstream new customer development, new technology progress falling short of expectations, etc.