1) the leading position of the commutator is stable. ① has a high market share: the company is the global leader in micro-motor commutators, with a market share of about 15%, ranking second in the world and 20% in the automotive field. Commutator industry customer certification barriers are high, the company's leading position is stable. ② customer quality: the company has established a long-term cooperative relationship with the world's top motor and auto parts customers, and the company's commutator products have a high share in Bosch Group, Dechang Motor, Valeo, Marlborough, Boze Group, Asmo and other top customers. The outlook for ③ business remains stable: the industry has entered a period of steady development, with an average growth rate of about 10 per cent. The company has a high capacity utilization rate of commutators, which has been maintained at about 100% for a long time. The field of new capacity release + new products of graphite commutators + commutators for power tools has been developed to ensure the sustained and steady growth of the company's commutator business.

2) the foundation of new business development is solid, and the results are beginning to show. (1) the company lays out the business of precision structural parts and auto parts of new energy automobile, which has a solid foundation: ① technology is solid: the company has worked hard in the field of commutator for many years, and has accumulated rich technologies related to welding, stamping, moulds, etc., with excellent product quality and has passed the assessment and certification of the world's top customers. ② invested heavily in R & D: 60 million yuan in R & D expenditure in 2017, an increase of 52.41% over the same period last year, accounting for 39.70% of the current profit. The company is actively laying out new products and new technologies, and R & D investment is expected to continue to increase. ③ has a wide range of customer channels: the company has established a long-term and stable cooperative relationship with the world's top automotive electronics suppliers and automotive companies, and continues to expand its customer range through the merger of high-quality targets such as Germany's Walter and SMK. The company's new business customers have a high degree of overlap with the original customers, and the customer channels are perfect and extensive. ④ capacity layout is forward-looking and reasonable: since 2017, the company has successively invested in automotive lightweight and automotive electronic control, battery components expansion project (Shenzhen Pingshan), power battery components and connector production line construction project (Roy Lingen, Germany), global capacity layout, close to customers, scientific foresight, and provide a strong guarantee for new business volume. (2) the new business is beginning to bear fruit and the volume is just around the corner. The company has been designated as the German Zaifu Group (one of the world's largest automotive system integration suppliers) new energy vehicle drive motor connector project batch supplier, connector new business volume is just around the corner. It is expected that there will continue to be breakthroughs in new products and new orders.

3) the post-subsidy era is approaching, and the company's performance is about to take off. China has become the world's largest market for new energy vehicles, accounting for more than 60% of global sales of new energy vehicles in 2017. China's new energy subsidy policy has accelerated its decline and is about to be cut off in 2020. In addition, the state has completely liberalized the foreign equity ratio of new energy vehicles, and the conditions for foreign car companies and power battery giants to enter China are becoming more and more mature. Foreign car companies and power batteries in the "post-subsidy era" will enter the Chinese market on a large scale. The company binds overseas giant customers and will share the development dividend that the "post-subsidy era" brings to foreign car companies and power battery giants, and the performance is about to take off.

4) Investment suggestion: if the consolidated statement of SMK is not taken into account, the company's income in 2018-20 is expected to be 1661.75 million yuan, 2093.98 yuan and 2793.21 million yuan respectively, the net profit of returning mother is 181.84 million yuan, 240.89 yuan and 338.10 million yuan respectively, the EPS is 0.63,0.83,1.16 yuan respectively, and the corresponding PE is 24.48,18.48,13.16 times respectively. If we consider the consolidated table of SMK, the net profit of returning home in 2018-20 is 191.84, 261.89 and 361.10 million yuan respectively, and the PE is 23.20,17.00,12.33 times respectively. The company's new business is deeply in line with the development trend of the new energy vehicle industry, and it is optimistic that the company will release new products in the future, covering it for the first time, and giving it a highly recommended rating.

Risk hint: low expectations for new business development and low expectations for the development of new energy vehicle industry