The policy is driving the increase in demand for gas analysis instruments and gas sensors in the market. As one of the core key components of China's “strong foundation engineering”, sensors are widely used in various fields such as industrial energy efficiency, environmental monitoring, smart homes, and healthcare. In February 2023, the General Office of the General Administration of Market Regulation issued the “2023 National Measurement Work Highlights”, which proposes “further developing the role of national (city) energy metering centers, carrying out phased evaluations of national (urban) energy metering centers, strengthening the construction of online energy consumption monitoring systems for key energy consumption units, and organizing local authorities to carry out energy measurement reviews and supervision and inspection of energy efficiency and water efficiency measurements”. Starting July 1, 2023, the national six emission standards phase 6b will be fully implemented nationwide, and emission standards will be further raised. Therefore, we believe that whether it is energy saving and consumption reduction in industrial processes, greenhouse gas emission testing, or where emissions from fuel vehicles and non-road mobile machinery are subject to increasingly strict regulations, it is expected to drive an increase in demand for gas analysis instruments and gas sensors.

The company's gas analyzer business is developing rapidly. The company has been involved in the carbon measurement business since 2012, and has a good technical accumulation and industrial foundation in the fields of carbon monitoring from pollution sources, carbon monitoring in buildings and automobiles. Based on the industrial gas sensor technology platform and the Ministry of Industry and Information Technology's biogas engineering IoT project, the company provides gas measurement devices such as CH4 and CO2 in many fields such as large and medium-sized biogas engineering, biomass gas engineering, and comprehensive utilization of coalbed methane gas gas, etc., to provide basic data for clean development mechanisms (CDM) and carbon trading.

The company is deeply involved in the automotive industry chain, and the on-board sensor layout has been further improved. Since the company obtained the IATF 16949:2016 automobile quality management system certification in 2017, the company's vehicle sensor product line has been further extended, and the product application range has covered a wider range of models from the initial middle to high-end models. According to the company's announcement, the company added about 7 million new vehicle sensor projects in the first half of 2023. The company's vehicle sensor business expanded from automotive comfort system sensors to in-vehicle air improvement devices. Vehicle sensors showed a good development trend in fuel vehicles and new energy vehicles. The company's automotive sensor business, which mainly focuses on automotive comfort systems, continues to grow well; the company's power battery thermal loss monitoring sensors have been supplied in batches; the company's engine emission oxygen sensors continue to be supplied in large quantities, and product reliability has been recognized by customers. The automotive business is expected to drive the company's growth.

Profit forecast, valuation and rating: According to the company's announcement, the sales revenue of the company's air quality sensor business declined in the first three quarters of 2023 due to the accumulation of inventory in the domestic and foreign air purifier markets and the slowdown in new demand. We expect this impact to continue. We lowered the company's 2023-2024 net profit forecast to be 170/228 million yuan, a decrease of 32%/33% from the previous one. The additional company's net profit forecast for 2025 was 338 million yuan, corresponding to PE23/17/11X. We believe that the company's vast automotive business space and abundant on-hand orders are expected to drive the company's long-term growth and maintain a “buy” rating.

Risk warning: Market competition intensifies, automotive business falls short of expectations, and progress in new product development falls short of expectations.