The company issued a draft equity incentive

The company announced the launch of a restricted stock incentive plan. The number of incentives to be granted for the first time in this incentive plan is 55 people. The number of shares to be granted accounts for 0.94% of the total share capital, and the grant price is 20.16 yuan/share. The first assessment target for 2025-2027 is operating income reaching 2.1/2.63/3.2 billion yuan, respectively, with a year-on-year increase of 21.3%, 25.2%, and 21.7%, respectively. The revenue growth rate for 2025 is calculated based on the company's 2024 revenue forecast. This equity incentive shows the company's confidence in long-term development and helps stimulate the enthusiasm and creativity of the core team.

The company's core products outperform the industry

The company attaches great importance to R&D. The R&D cost rate in 2023 is 9.8%. It relies on more advanced technology and more stable quality to enhance competitiveness and brand awareness, and its core products outperform the industry. 1) PLC: Industry CAGR = 6% in the past 5 years, company CAGR = 14%.

2) Servo system: industry CAGR = 8% in the past 5 years, company CAGR = 35%.

3) Human-machine interface: industry CAGR = 6% in the past 5 years, company CAGR = 8%.

2024 could be the inflection point of the company's profitability

The company's revenue has maintained positive growth since 2013, but net profit continued to decline from 2021 to 2023. The core reason is that the company's comprehensive gross margin continued to decline and the expense ratio continued to rise during the period. The decline in the company's net interest rate basically = decline in gross margin+increase in the period expense ratio. Comprehensive gross margin improved year-on-year starting in 2023H2 under measures to reduce overall demand and increase the cost and efficiency of servo systems. After offsetting the increase in the cost ratio during the first three quarters of 2024, net margin increased slightly by 0.1 pp. Looking forward to the future, when the company's front layout at both ends of R&D and marketing gradually gains strength, the cost ratio is expected to decline steadily during the period, and the net interest rate is expected to continue to rise and there is plenty of room. 2024 may be an inflection point in the company's profitability.

Profit forecasting and investment advice

Referring to the latest performance report, we raised our 24-26 revenue forecast of 1.73/2.07/2.48 billion yuan to 1.73/2.12/2.65 billion yuan, maintaining the 24-26 EPS forecast of 1.62/2.07/2.63 yuan, corresponding to the closing price of 40.61 yuan on December 5, 2024. The valuation was 25/20/15 times, respectively, and maintained a “buy” rating.

Risk warning

The risk of macroeconomic fluctuations, the risk of increased industry competition, and the risk of fluctuations in raw material prices.