Key points of investment
Deeply cultivate pure water cooling equipment, and deploy in various fields to help performance growth.
1) The company was founded in 2001 and is committed to R&D, design, production and sales of pure water cooling equipment and control systems for power electronic devices. The initial products are mainly used in the field of power grids. Gradually expanding into other fields, the company has now successfully deployed fields such as petrochemicals, rail transit, military ships, and new energy. It is one of the few domestic enterprises that can provide cross-field pure water cooling solutions, and has become a pioneer in the application of new energy and energy-saving technology.
2) In 2019, with the exception of DC water cooling and flexible AC water cooling equipment, sales of other main products achieved rapid growth. In March 2019, Mr. Li Qi, chairman of the company, became the general manager. Li Qi has a science and technology background and technical heritage. It is expected that the company's business structure will be rationalized, and high performance growth can be expected.
UHV has become a key investment area for “new infrastructure”, and pure water cooling equipment is expected to fully benefit.
1) The State Grid plans to invest 181.1 billion yuan in UHV construction projects in 2020, which can drive social investment of 360 billion yuan, with an overall scale of 541.1 billion yuan. UHV construction exceeded expectations. Pure water cooling equipment is a key supporting equipment in the field of UHV power transmission. Currently, China has 5 key UHVDC projects awaiting approval to commence and construction, and 2 flexible DC transmission projects. The corresponding market space for pure water cooling equipment is 800 million yuan.
2) Some of the company's UHV pure water cooling technologies have advanced international standards, have deep reserves of relevant technology, and are participants in setting national and industry standards. Customer resources are of high quality, accounting for most of UHV's share, and are expected to fully benefit the development of the industry.
There is a major trend in new energy, and the merger and acquisition of Si Xiang is expected to form business synergies, and increased performance can be expected.
1) In the context of new energy vehicles, battery thermal management, electric motor thermal management, and other equipment cooling systems together form a thermal management system, which is related to the service life and safety of the battery. Liquid cooling and direct cooling are more suitable for current high-power charging/discharging scenarios.
2) The share of new energy vehicles continues to increase, and electrification has become a trend. The thermal management value of bicycle battery systems is high. According to estimates, in the next three years, the market space for liquid-cooled+electric thermal management systems is expected to exceed 80 billion yuan.
3) Dongguan Sixiang is a domestic high-tech enterprise for power battery thermal management. It specializes in R&D, production and sales of new energy power battery heating, insulation, cooling and automotive electronics manufacturing services. It is expected to strengthen collaboration with the company's business principles. This acquisition helped the company enter the NEV sector, and its performance can be expected to increase.
Entering the field of liquid cooling in data centers (IDC) opens up new growth space.
1) The number of data centers around the world is declining and increasing. With the rapid development of cloud computing, big data, etc., demand for high-performance, high-density computing is growing rapidly, and data center energy consumption problems are becoming more and more prominent. Computer room cooling systems are a very important part of data centers and play a key role in ensuring the normal operation of data center equipment. According to Stratistics forecasts, the global data center liquid cooling market will grow to $4.55 billion by 2023, with a CAGR of 27.7% in 2016-2023, and the market space is broad.
2) IDC pure water cooling has the same principles as electric pure water cooling processes. The company began entering the data center cooling field in 2015 and has developed panel liquid cooling systems in the data center field. We believe that the company is positioned as a solution provider to reduce the energy consumption of the entire computer room, and is expected to fully benefit from processes such as cloud computing and big data.
It was covered for the first time, giving it an “increase in holdings” rating. The company is a leader in pure water cooling equipment in China. It has a leading edge in technology. It is one of the few domestic enterprises that can provide cross-field pure water cooling solutions. It is expected to fully benefit from UHV construction exceeding expectations and cloud computing and big data processes. Furthermore, the company acquired Dongguan Si Xiang and entered the field of new energy vehicles, which is expected to form business collaborations, and increased performance can be expected. The company's net profit is expected to be 106, 144, and 182 million yuan in 2020-2022, and the corresponding PE is 25, 18, and 14 times, respectively.
Risk warning: Risk of new product development and expansion in new application fields, risk of large accounts receivable balance, risk of downstream demand falling short of expectations, and risk of declining gross margin due to increased industry competition.