investment points

first quarter of 2024: sluggish downstream demand puts pressure on net profit attributable to parent, expecting commercial volume of humanoid robots 1) for the whole year of 2023: the company will realize operating income of 0.36 billion yuan, up -20.1 year on year; Net profit attributable to parent was 0.08 billion yuan, up -45.8 year on year. Achieve net profit of 0.07 billion yuan after deducting non-return to parent, up -41.5 year on-year; Achieve gross profit of 41.1, yoY -7.6pct, net interest rate 23.8%, YoY -11.3pct. By business, revenue from harmonic reducers and metal parts fell 23.8 percent year-on-year; revenue from mechatronics products grew 30.8 percent year-on-year; and intelligent automation equipment grew 1892 percent year-on-year. 2) In the fourth quarter of 2023, the company achieved operating income of 0.1 billion yuan, up 0.9 percent year-on-year, and net profit of 0.01 billion yuan, down 57.3 percent year-on-year. 3) First quarter of 2024: The company achieved operating income of 0.08 billion yuan, up -7.5% YoY, and net profit of 0.02 billion yuan, up -18.4% YoY. Q1 performance pressure is mainly due to the downstream 3C electronics, semiconductor demand downturn.

precision reducer for one of the core components of the robot, humanoid robot to bring a broad incremental market 1) artificial intelligence, new energy vehicles and other fields of leading manufacturers to support, 2024 humanoid robot industry or will enter the first year of small-scale mass production, industrialization landing progress is expected to exceed expectations. Reducer as a global AI wave, Chinese manufacturers can deeply participate in the field, domestic manufacturers have great opportunities for development. We estimate that the total demand for humanoid robots in manufacturing and home affairs in China and the United States is expected to be about 2.03 million units in 2030. Assuming that each humanoid robot needs 10 harmonic reducers and 4 planetary reducers, with an average price of about 714 yuan/unit, the market increment space for reducers in the field of humanoid robots in 2030 is about 20.3 billion yuan, which is a huge increase over the current demand for industrial robots.

2) The company and Sanhua Zhikong signed the "Strategic Cooperation Framework Agreement" and jointly established a joint venture company in Sanhua Mexico Industrial Park. This cooperation is a strong alliance. On the one hand, harmonic reducer products have a high technical wall. As a leading domestic enterprise, the company is expected to strengthen the technical level of both parties in robot joint related products. On the other hand, Sanhua, as a leader in the field of automotive thermal management, has a close cooperation relationship with major North American customers. The company is expected to jointly expand the global market and realize industrial linkage with the help of Sanhua's customer relationship and channel advantages.

it is estimated that 500000 precision reducers will be produced annually in 2024. the intelligent manufacturing demand structure upgrade company is expected to benefit from 2023. the company has completed the housing civil engineering and related equipment procurement for the expansion project with an annual output of 500000 precision reducers, and plans to complete the construction, commissioning and production of related intelligent production lines within 2024.

medium and long term, intelligent manufacturing equipment industry demand structure upgrade, the company's product market space is broad. Among them, robots: the global penetration rate of industrial robots is continuously increasing, the commercial landing of mobile robots at home and abroad, large-scale production is imminent, and the industrialization of humanoid robots is accelerating. Machine tools: The output of CNC machine tools for metal processing in China showed an overall upward trend in 2018-2021, and the demand for high-end CNC machine tools mainly for four-axis and five-axis processing increased rapidly. Medical and semiconductor equipment: domestic substitution accelerated, and application proportion.

profit forecast and valuation

it is estimated that the net profit attributable to the parent in 2024-2026 will be 0.11 billion yuan, 0.16 billion yuan and 0.23 billion yuan respectively, up 32%, 44% and 43% year on year, corresponding to PE of about 182, 127 and 89 times. As a domestic leader in harmonic reducers, humanoid robots are expected to open up new market space and maintain an "overweight" rating.

Risk warning: technological breakthrough is less than expected; market demand is less than expected; humanoid robot industrialization is less than expected