In the first half of 2022, the company realized revenue of 1.542 billion yuan, + 25.2% compared with the same period last year, and realized net profit of 350 million yuan, + 13.2% compared with the same period last year, of which, revenue in the second quarter of 2022 was 780 million yuan, + 10.7% compared with the same period last year, and net profit of 171 million yuan, + 7.3% of the same period last year. The company's performance growth slowed in the first half of the year, mainly due to the impact of the Yangtze River Delta epidemic in the second quarter on product exports, superimposed demand-side US inflation-the failure of subsidies led to lower-than-expected demand. Considering the improvement in port capacity and the still strong demand for high-end electric bikes in Europe, the company is expected to repair its performance growth in the next quarter from a month-on-month basis; considering the low base in the same period, Q3 performance growth is expected to pick up to 30% +. Considering the local epidemic situation of Q2 and the inventory pressure in the US market, the company lowered its 2022 EPS forecast for 23 years to 6.03 EPS 8.16 yuan (the original forecast was 6.48max 8.45 yuan), added the 2024 EPS forecast to 10.48 yuan, and gave it a target price of 199 yuan and a "buy" rating according to the 33x PE in 2022.

Domestic business revenue is stable and overall performance growth has slowed. The company realized revenue of 1.542 billion yuan in the first half of 2022, + 25.2% of the same period last year, and net profit of 350 million yuan, + 13.2% of the same period last year. Among them, Q2 achieved revenue of 780 million yuan in 2022, + 10.7% of the same period last year, and net profit of 171 million yuan, + 7.3% of the same period last year. The growth rate of performance slowed down, mainly because the epidemic in the Yangtze River Delta affected product exports in the second quarter. Demand-side US inflation superimposed subsidies failed, demand was lower than expected, and dealers' inventory was under pressure. Thanks to the control of local outbreaks in the country since June, the improvement in port capacity and the decline in raw material prices, and the addition of last year's low Q3 base, we believe that the growth rate of performance in the third quarter is expected to return to about 30%.

The gross profit margin is under pressure, and the R & D cost has increased greatly compared with the same period last year. 2022Q2, the company's gross profit margin is 31.4%, year-on-year-2.9pcts, month-on-month-4.3pcts, mainly due to the decrease in exports under the local epidemic, the increase in the revenue share of domestic low gross margin integrated motor products, and the change in product structure. At the same time, weaker demand has led to a decline in the profitability of hub motors (mainly in the North American market). The company's second-quarter expense rate is 5.7%, year-on-year-1.4pcts, month-on-month-2.1pcts; sales expense rate is 3.0%, year-on-year + 1.2pcts, management expense rate is 3.3%, year-on-year + 0.2pct, financial expense rate is-3.3%, year-on-year-3.4pcts, mainly due to exchange rate changes The R & D expenditure rate was 2.7%, reaching 42 million yuan, compared with 24 million yuan in the same period last year, mainly due to the company's strengthening research and development and adhering to the technology-oriented market development strategy. A total of 70 patents were applied during the reporting period.

Product strength / brand awareness is on the rise, and high-end demand in the European market remains stable. During the reporting period, the company successively launched new mid-set motor products such as M510 and M820, continuously improved the product series, created the first EMC laboratory in China, obtained the qualification of UL2849QTL laboratory awarded by SGS, and improved the company's quality management ability. At the same time, the company has repeatedly organized employees to go to Poland, the United States and Germany to participate in exhibitions, strengthening the "Bafang" in the industry.

Brand image. Affected by the epidemic and the popularity of cycling culture, there is a strong demand for electric bikes in Europe. According to the European Bicycle Association, sales of electric bicycles in Europe exceeded 5 million in 2021, with a penetration rate of 23%. The association expects a compound growth rate of 20% in the next 2-3 years. The European market remained high during the reporting period. According to Shimano and Giant Machinery, the inventory of high-end products remained low; as the basic set of the company's business, the demand in the European market remained stable, and the weak macro expectations did not actually reflect the terminal demand for electric bikes in Europe.

The layout of domestic production capacity is becoming more and more perfect, and the volume of overseas products is restricted by the supply of spare parts for electric bikes. During the reporting period, the company's subsidiary infrastructure projects started one after another, among which, the first phase of the Bafang Tianjin electric vehicle drive system manufacturing project covers an area of about 30,000 square meters, which will become the main manufacturing base for domestic business in the future; the first phase of the Bafang new energy lithium battery pack and high-end drive system manufacturing project has a construction area of about 100000 square meters, which will help the company to improve the product matching rate and provide customers with the best solution. Due to the lack of capacity improvement of Shimano transmission, the company's overseas production capacity can not be fully released, some high-end products are in short supply, and inventory remains low. Considering Shimano's announcement that it will invest US $179 million in new plants in Singapore and plans to invest another US $118 million to expand production capacity in Osaka and Yamaguchi, Japan, the problem of parts shortage is expected to ease by the end of 2022.

Risk factors: demand uncertainty caused by overseas macro deterioration; deterioration of overseas trade policy; intensification of industry competition.

Profit forecasting, valuation and rating: the company is one of the leaders of global electric bicycle drive systems and components (PAS), with a rich product range, large user scale, strong customization ability and unique brand and customer advantages. Benefiting from the high certainty of industry growth and capacity expansion, the company's performance is expected to maintain rapid growth.

Considering the local epidemic situation of Q2 and the inventory pressure in the US market, we downgrade the company's 2022 EPS forecast to 6.03 EPS in 23 years (the original forecast is 8.45 yuan), and increase the 2024 EPS forecast by 10.48 yuan. Since the listing of the company, the average PE corresponding to the consensus expectation of Wind is 39x. Considering the company's high overseas exposure and certain performance uncertainty, it is given a certain discount according to 0.5x standard deviation (6x) and a target price of 1999yuan and "buy" rating at 33x PE in 2022.