Introduction to this report:

The company benefits from business collaboration brought about by Gree's entry, and its main business performance is expected to recover; the new energy business is expected to enter the mainstream OEMs' supply system at a faster rate than expected under cooperation with Tier 1 suppliers.

Key points of investment:

First coverage, given an increase in holdings rating, with a target price of $20.37. It is predicted that the EPS for 2023-2025 will be 0.69, 0.89, and 1.06 yuan, -13%/+28%/+20% compared to the same period last year (44% growth rate without deducting growth in 2023). The PE and DCF valuations of comparable companies in the comprehensive industry give a target price of 20.37 yuan for 23 years.

Adversity has been reborn, and the main business governance has returned to the right track. The company benefited from the debt burden resolution and business collaboration after Gree joined the company, and the performance of the main refrigeration parts business is expected to improve markedly: as a leading enterprise in the air conditioning industry, Gree has long been the core customer of the company's refrigeration parts. In order to further increase the upstream supply chain layout and increase the proportion of self-production, after Gree becomes the controlling shareholder of the company, we expect that after Gree becomes the controlling shareholder of the company, it will inevitably increase collaboration between industry and research to help improve the company's management capabilities in the main refrigeration parts business, help smooth out fluctuations in revenue, and repair profitability.

Dunan is expected to accelerate growth through deeper cooperation with OEMs' thermal management tier 1 suppliers. 1) Common principles, traditional business empowerment, high barrier electronic expansion valve technology accumulation and leadership; 2) quality assurance capability and comprehensive cost advantages under production scale effects; 3) automotive electronic expansion valve industry concentration is extremely high, and currently only domestic core enterprises with mass supply capacity are Sanhua and Dunan; 4) In terms of product performance, although electronic expansion valve technology for vehicles developed later compared to competitors, its product layout is diverse. It is not at a clear disadvantage in terms of parameter performance, and has the ability to compete and replace some car companies and models.

Catalyst: Formalization of major customer orders brings demonstration effects, cooperation with more Tier 1 thermal management suppliers for modular products

Risk warning: competition among car companies' customers is intensifying; demand forecasting for electronic expansion valves and thermal management components is subjective