Introduction to this report:
The company's performance for the first three quarters of 2023 fell short of expectations. Performance is expected to recover after implementing the large terminal strategy and overall solution strategy. At the same time, the company and Bosch Group have established a joint venture, and the business is expected to develop rapidly.
Key points of investment:
Maintain an increase in holdings rating. The company's performance for the first three quarters of 2023 fell short of expectations. Considering product price reductions and gross margin pressure, the 2023-2025 EPS was lowered to 0.65/0.90/1.24 yuan (previously 0.92/1.22/1.51 yuan), respectively. Considering the strengthening of product strength in cooperation between the company and Bosch Group, the integration of resource advantages is expected to develop rapidly. Referring to the 2024 industry average valuation (56.19 times), the company was given 57 times PE in 2024, and the target price was raised to 51.3 yuan, maintaining an increased holding rating.
Events: In the first three quarters of 2023, the company achieved revenue of 885 million yuan (+26.14% year-on-year), net profit of 63 million yuan (-29.72% year-on-year), and performance fell short of expectations; in the third quarter alone, it achieved revenue of 283 million yuan (+20.68% year-on-year) and net profit of 13 million yuan (-60.50% year-on-year).
Promoting the large terminal strategy and overall solution strategy, performance is under pressure in the short term. The company actively promoted the large terminal strategy and reduced product prices in order to quickly enter the market. The gross margin for the first three quarters of 2023 was 29.85% (year-on-year -2.94 pct). At the same time, the company promoted an overall solution strategy, and sales and R&D expenses increased. The sales and R&D rates for the first three quarters of 2023 were 9.52% (year-on-year +1.25pct) and 11.93% (year-on-year +1.53pct), respectively, and the net interest rate was 7.25% (y-5.24).
A joint venture was established with the Bosch Group to further enhance product strength. On November 2, 2023, the company announced Bosch Group's strategic investment of 276 million yuan in Hechuan Technology. At the same time, Hechuan Technology and Bosch Group each invested 50% to establish a joint venture, Leda Bochuan. The partnership between Hechuan Technology and Bosch Rexroth is expected to serve the Chinese market with cost-effective automation and electrical control products. Hechuan Technology's product technology will be further improved, and the technological, market, capital and other resource advantages of both sides will be further integrated. Hechuan Technology is expected to achieve rapid development.
Risk warning: Market competition intensifies the decline in product prices; downstream demand falls short of expectations.