Soochow Securities released an investment research report with a rating of: Buy.
Inovance Technology (300124)
A master of industrial control, the three major businesses of general automation, new energy vehicles, and elevators develop collaboratively. Inovance was founded in 2003 and settled in 16 years. Industrial control started from a single frequency conversion product, positioned high-end, promoted industry solutions, focused on lighthouse customers in key industries, and aimed at import substitution, becoming the domestic leader in frequency converters in one fell swoop; in 2009, it took the lead in servo deployment and benchmarking Panasonic made breakthroughs in 2013, and started to implement the president system in the general field in 2015, effectively making breakthroughs in electronics, lithium batteries, photovoltaics, textiles, metallurgy, etc., and rivaling Siemens and ABB in the general automation field. New energy vehicles broke through the passenger car market in 2013 and launched a large-scale deployment of passenger cars in 16 years. Elevator acquired Best in 2019 to complete the layout. Currently, it has formed three main business areas: industrial control (Golden Bull business), elevator (cow business), and new energy vehicles (Rhinoceros business). industry collaborative development. The "Huawei-Emerson" management gene emphasizes R&D, solutions and industry marketing, and precise strategies to build core competitiveness. In 19, Huichuan's revenue was 7.39 billion. In the past 10 years, excluding Best, the CAGR was as high as 35%, and the profit in 19 was 1.05 billion. .
Transform and empower industries to enhance growth momentum. Huawei was founded in 1987. Since 1997, Huawei has carried out multiple rounds of changes with the help of outstanding external brains such as IBM, and has achieved continuous growth in the company's size and operational efficiency. Taking Huawei as a benchmark, Huichuan began to carry out organizational changes in 2019, hiring a consulting team founded by former Huawei executives to assist in planning including corporate governance (CG), strategy (SM), marketing (LTC/MCR), research and development (IPD) ), supply chain (ISC), human resources (IHR) and a series of reform projects. The first three core projects were launched in October 2019, with the goal of creating a "customer-centered, agile process organization". After the reform Inovance's core competitiveness, organizational efficiency, and strategic capabilities have been further improved, achieving the goal of doubling per capita output value in five years.
Driven by the three-wheel drive of strong recovery in advantageous industries, new products and solutions, and organizational changes, Inovance General is experiencing high growth. At the demographic turning point, the automation upgrade of China's manufacturing industry has just begun. Industrial control is the crown jewel of the manufacturing industry. The market share of local brands is less than 30%, and there is ample room for growth. At the same time, industrial control is related to the macroeconomy, with a cycle of 3-5 years. In June 2018, the Sino-US trade war began, and the industrial control boom weakened. In May 19, the trade war escalated and intensified. The Q1-4 growth rate in 2019 was 1.7/-1.0 respectively. /-2.9/-0.2%, of which OEM market -3.7/-3.3/-6.0/-3.9%, project type 5.8/3.5/2.0/4.3%, Q4 began to improve, medium-term indicators PMI, solid investment, machine tools, robots Production and sales also confirmed the improvement. The epidemic in 20Q1 has not changed the recovery trend of industrial control. The demand for mask machine solutions is booming. Downstream demand such as electronics, photovoltaics, and lithium batteries, which were the first to recover before, are still strong. Only the project-based market has been slow to resume work and is temporarily depressed. It is expected to improve in the second quarter. Inovance, on the other hand, relied on advantageous industries such as lithium battery, photovoltaic, and electronics to take the lead in strong recovery and seize opportunities in the mask machine industry. The tight supply of overseas peers accelerated import substitution in industries such as wind power. Q1 orders significantly exceeded expectations, reflecting extremely strong operations. α. At the same time, during the downturn, the company initiated organizational changes to improve cohesion. In 2019, it launched new generation products such as servo and PLC, and in 2020 it is expected to launch CNC, etc. We believe that just like the super high growth of the general sector after the bank manager system in 2016-18, this round During the recovery, General Automation is expected to return to a growth range of more than 30%.
With accumulated experience in motor and electronic control, we can see the light through the clouds and create a new Huichuan in the future. Motor electronic control is the most critical component in electric vehicles besides batteries. It is expected that the global electronic control market will exceed 100 billion in 2025.
In 2013, Inovance provided Yutong with exclusive power supply and control, and in 2015 it became the largest electronic control company in terms of sales in China. At the end of 2016, Inovance made a large-scale deployment of electric motor control for passenger cars. It relied on the industrial control platform to create electronic control products, and joined hands with Brusa to complete motors, reducers, We have shortcomings such as DC/DC and OBC, and have built a R&D team of 80 people, with a total investment of more than 2 billion RMB in R&D, to build a world-class powertrain supplier. The current competitive landscape for high-end passenger car electronic controls is dominated by overseas players such as Bosch, Valeo, Bogner, and Nidec, while only Innovator can compete domestically. In terms of passenger car customer expansion, the company increased the volume of Weimar in 2019 and Chehejia began to increase volume at the end of the year. In 2020, Internet car companies continued to increase volume. First-tier car companies such as Guangzhou Automobile and Great Wall successfully started to increase volume in 2020 and will continue to expand in the future. In order to strive for point A, overseas international car companies have successfully targeted 2 points in 2019, and are expected to continue to exceed 2-3 points this year. In 2019, commercial vehicle products are reduced in volume and price and passenger vehicles have not yet increased in volume. It is expected that the loss will be around 350 million. In 2020, commercial vehicles will recover and passenger car customers will enter the harvest period. The loss is expected to be significantly reduced by more than 100 million. The target is to break even in 2022. It is expected that By 2025, it will obtain more than 10% of the domestic share and is expected to “rebuild another Huichuan”!
Elevator-related businesses are the ballast for stable cash flow. The integrated elevator machine is a model for Inovance's industry development. Elevator sales in 2018 were RMB 1.37 billion, and the CAGR from 2007 to 2018 was as high as 40%. In 2019, Huichuan acquired Best, and the two companies complemented each other in terms of customers and products. On the one hand, Huichuan accelerated the expansion of multinational customers, and on the other hand, it enriched Huichuan Elevator's large supporting solution capabilities. The elevator business has good profitability and cash flow, which will be the cash flow ballast for Inovance's stable growth in the long run. The consolidation of BEST will bring an increase in profits of RMB 160-200 million to Huichuan in 2020.
Profit forecast and investment rating: The net profit attributable to the parent company in 2019-2021 is expected to be 1.047/1.479/1.884 billion respectively, which is -10.3%/+41.3%/+27.4% year-on-year; EPS is 0.60/0.85 respectively. /1.09 yuan, corresponding to the current price PE of 44 times/31 times/25 times respectively, giving a PE of 42 times in 2020, with a target price of 35.7 yuan, maintaining a "buy" rating.
Risk warning: Macroeconomic downturn, competition intensifies, electric vehicle production and sales are lower than expected, customer development is lower than expected, etc.
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