Key points of investment

Leading domestic charging module manufacturer, with rapid revenue and profit growth. The company focuses on power electronics products with DC power supplies as the core. It is one of the first domestic companies to enter the field of charging power supplies and vehicle power supplies for domestic charging and switching stations. In the first half of 2023, the company's main business was charging and switching station power supplies, customized power supplies, power operation power supplies, and other power supplies, accounting for 57.32%, 3.67%, 22.36%, and 1.73% respectively. In 2022, the company achieved revenue of 639 million yuan, an increase of 51.79% over the previous year, and achieved net profit of 44 million yuan, an increase of 36.36% over the previous year, mainly due to the sharp increase in power supply sales for charging and switching stations in 2022. In 2023, the company expects to achieve net profit of 0.9-120 million yuan, a year-on-year increase of 102.91%-170.55%, and net profit after deduction of 0.72 to 102 million yuan, an increase of 131.56%-228.05% year-on-year, mainly driven by a sharp increase in charging module revenue and gross margin.

China, the US, and Europe are making concerted efforts to increase global charging module shipments. Domestic companies' overseas layout has accelerated the domestic charging pile market. It is clear that by the end of the “14th Five-Year Plan”, China will form a moderately advanced, balanced layout, intelligent and efficient charging infrastructure system. We expect the domestic charging module market to be 7.4 billion yuan in 25, and the CAGR will reach 57% in 22-25; there is a large potential growth room for electrification in Europe and the US. With the implementation of planning and subsidy policies, construction is expected to increase faster than the pace. Domestic market . The charging module is the core component of DC charging piles. It has a high cost ratio and an excellent competitive pattern. The future will develop in the direction of high power, high efficiency, high power density, and wide voltage range; the sales price and gross margin of overseas charging modules are significantly higher than at home, and domestic module companies are speeding up the verification process and the pace of going overseas in the European and American markets.

Actively expanding the off-grid and overseas markets, the high-frequency, high-quality iterative market share of products is expected to continue to increase. The company has been one of the earliest companies in China to enter the charging module industry. It has undergone eight changes since participating in the Olympic program in 2007, launched a full silicon carbide charging module and achieved batch supply in '19, smoothly expanding the capacity of 40kW high-power modules in '21, and proposed a full gluing scheme to improve reliability; the company has a high market share within the national grid system. It has continued to break through the off-grid market in recent years, achieving revenue of over 310 million yuan for charging modules in '22, corresponding to a domestic market share of over 10%; At present, the company is actively promoting overseas certification and customer development efforts. Europe has passed certification in '22. In addition, it is increasing development efforts in Russian-speaking regions, India and other countries. At the same time, the company plans to raise 640 million yuan for the Shijiazhuang charging module production capacity expansion project. With the commissioning of the fund-raising project and the passing of overseas certifications, the company's charging module business is expected to continue to grow rapidly and increase its global market share.

The military power supply business continued to expand, and the leading power supply position was stable, and revenue continued to grow. During the “14th Five-Year Plan” period, the entire military industry entered a new round of expansion cycle. With the continuous advancement of domestic manufacturers in the technical level and the acceleration of the military equipment localization process, the competitive advantage of domestic manufacturers in the military power supply market increased significantly. The company's Howell Power Supply focused on the military power supply business, with remarkable product competitiveness and strong customer stickiness; the company continued to increase its share of the power supply market for many years. and the intelligent process of power grids Steady growth is expected in the context of acceleration.

Profit forecasting and valuation

First coverage, giving a “buy” rating. The company is a leading domestic charging module company, and the acceleration of overseas market layout opens up room for long-term growth. We expect the company's net profit to be 0.96, 1.64, and 267 million yuan respectively in 2023-2025, corresponding EPS of 0.55, 0.94, and 1.54 yuan/share, respectively, corresponding to PE 36, 21, and 13 times PE, respectively. We selected Teruide, Green Energy, and Yonggui Electric as comparable companies, which manufacture charging equipment. The average PE in the same industry in 24 years was 30 times higher. We gave the company a valuation of 30 times PE in 2024, corresponding to a market value of 4.9 billion yuan and a target price of 28.40 yuan. Corresponding to the current market value, there is room for an increase of 45.20%. For the first time, we covered it for the first time, and gave it a “buy” rating.

Risk warning

The risk that domestic charging piles and charging stations will fall short of expectations; the risk that changes in international trade policies affect the export/overseas process; and the risk that gross margin will decline due to increased market competition.