(Report Producer/Analyst: Kaiyuan Securities, Meng Pengfei, Xiong Yawei)
1. The "little giant" of industrial control that opens up the motion control industry chain
1.1. The company is a platform motion control manufacturer with controllers, drives and motors at the same time
The motion control system is the core basic component of intelligent manufacturing equipment, which determines the accuracy, efficiency and differentiation level of the equipment.
The company is one of the few enterprises in China that has a comprehensive R&D platform for controllers, drives and motors, and has achieved full coverage of the main products of motion control systems.
The first development period from 1997 to 2007: In 1997 and 1999, the first PC motion control card and stepper driver were launched, and the first DC servo driver was launched in 2003.
From 2008 to 2020, the second development period (expansion of operation control products): the product categories of stepper drivers and operation control cards have been continuously expanded, and bus type steppers, closed-loop bus steppers, and EtherCAT bus control cards/controllers have been launched. Launched new products: AC servo system, intelligent integrated motor, L7 series AC servo drive, HMI series touch screen products, motion control PLC series products.
The third development period from 2021 to 2030 (high-end product upgrading, strategic upgrading, and organizational change): L8 series high-end AC servo system, L7 dual-axis, EIP/linear AC servo, LC series large PLC, MC500 series general-purpose medium-sized PLC were launched.
Stepper system, servo system and controller are the company's three main products.
With the continuous enrichment of the company's product categories, the revenue proportion of the stepper system has decreased from 52.3% in 2020 to 47.7% in 2023H1.
The downstream covers new energy, 3C electronics, semiconductors, logistics AGVs, special machine tools, industrial robots, packaging and other industries. At the same time, based on the above products, the company provides complete motion control solutions for customers in different downstream industries.
1.2. Strong profitability, marketing reform is expected to drive further profit margins
The company's operation is stable, and the revenue side of the industry still achieves positive growth during the downturn.
Since 2021Q2, the prosperity of the industrial automation OEM market in which the company is located has begun to decline, but the company has ensured positive growth in operating income in 2021-2023H1 by exploring emerging markets and promoting new products and industry solutions.
In 2023H1, the company's net profit attributable to the parent decreased by 32.97% year-on-year due to the insufficient demand of downstream industries, the increase in the company's internal reform costs and the payment of equity incentive expenses, and the net profit attributable to the parent decreased by 12.65% year-on-year if the factor of share-based payment is excluded.
From 2017 to 2023H1, the company's gross profit margin was stable at about 40%.
Programmable logic controllers are the products with the highest gross profit margin in the company, and they are stable at more than 68% in 2020-2023H1. The controller is the core module of the motion control system, and its performance directly determines the performance level of the motion control system. The high-performance controller has high technical barriers, a relatively low cost in the entire intelligent equipment, and high customer stickiness, so the gross profit margin can remain high.
From 2022 to 2023H1, affected by the weakening of downstream demand and the decline in the price of servo system products during the promotion period, the gross profit margin of the company's stepper system and servo system declined, dragging down the comprehensive gross profit margin.
From 2017 to 2021, the company's net sales profit margin remained between 17% and 20%, ranking at the forefront of the industry.
In 2022-2023H1, the company's net profit margin decreased due to the weakening demand of the industry, the increase in commodity and raw material prices, as well as the impact of internal change expenses and increased equity incentives.
Marketing changes and high-end product upgrades jointly promote the company's profit margin.
From 2020 to 2023H1, the company's R&D expense ratio was 9.24%/11.28%/12.20%/13.84%, respectively, which continued to increase. The company supports continuous iteration of product performance with industry-leading high R&D investment. In 2022, the company will reform its marketing model, upgrade from direct sales to channels, and introduce excellent channels of foreign brands for product promotion and sales.
In the long run, the company's high-end products domestic substitution, general-purpose products through the dealer system to greatly increase sales, economic products through the dealer system to seize more low-end equipment market will jointly promote the expansion of scale effect and profit margin.
1.3. The company has formed a technical team with the chairman as the core, and the equity incentive demonstrates long-term growth confidence
The actual controllers of the company, Li Weiping and Shi Huimin, are husband and wife. As of the third quarter report of 2023, Li Weiping, the actual controller and chairman of the company, directly and indirectly holds 34.85% of the company's shares, and Shi Huimin holds 7.87% of the company's shares.
The chairman has a technical background and has strong know-how in motion control. He received his Ph.D. in Robotics and Automation from the Massachusetts Institute of Technology (MIT) in 1990, and has served as an associate professor at WSU State University in Michigan and the Hong Kong University of Science and Technology, and has served as a technical consultant for many high-tech companies in the United States and Hong Kong, China, and is a member of the American Society of Mechanical and Electrical Engineers (ASME), the Institute of Electronics Engineers (IEEE), and the International Society of Control Systems Engineers (ICS). Vice President of Shenzhen Robot Association and Executive Director of Guangdong Automation Association.
The company has formed a high-quality R&D technical team with Dr. Li Weiping as the core. In view of the future development direction of networking, intelligence and integration of motion control systems, the company's technical team actively develops high-speed and high-precision motion control technology, fieldbus control technology, visual inspection control technology and other product technologies that represent the future development direction, constantly enriches its own technical reserves, and improves the level of product competition.
Equity incentives demonstrate confidence in long-term growth. In 2022, the company implemented the first round of equity incentive plan, covering more than 300 key core talents. The additional lifting conditions are that the growth rate of revenue or net profit attributable to the parent company from 2022 to 2024 shall not be less than 10%/30%/60% compared with 2021, respectively.
2. Motion control industry: tens of billions of markets, cycle recovery, domestic substitution and emerging demand resonance
2.1. Drivers and controllers are the most difficult in motion control systems, and software algorithms are the core barriers
The motion control system is the core basic component of intelligent manufacturing equipment, and the software algorithm is the core barrier. The motion control system is mainly composed of a controller, a driver and an actuator motor. The dosage of the drive and actuator motor is a 1:1 relationship.
The traditional 6-axis industrial robot is a solution that uses one controller to control six drives. For more complex systems, the number relationship between controller and driver can be 1:3 or even 1:1.
In the absence of obvious hardware differentiation, software algorithms are the key to determining the performance of motion control systems.
Depending on whether there is a feedback loop, motion control systems can be divided into open-loop systems and closed-loop systems.
The stepper system is usually an open-loop system consisting of a stepper motor and a stepper driver. In the open-loop stepper system, the stepper motor works according to the instruction pulse sent by the driver, and rotates the corresponding angle according to the set direction, and there is no other sensing mechanism for signal feedback.
The servo system is all closed-loop system, which can achieve high-precision control.
The servo system consists of a servo drive and a servo motor. In the closed-loop motion control system, the controller performs logical and mathematical operations according to the requirements of motion control, sends the control signal to the servo driver, and the servo drive converts the control signal into a current pulse signal to drive the servo motor to operate, and the servo motor and the encoder feed back the current, position and speed signals to the driver respectively. The drive corrects the error in real time by comparing the two signals, so that the servo motor can operate precisely.
In the whole process, the controller acts as the "brain" to control the entire execution layer (including the driver and the motor), and the function of the driver includes two parts: position/speed/torque control of the servo motor and power drive (power supply). As a result, controllers and actuators are the most difficult components of motion control systems.
2.2. The operation control industry is expected to recover from the bottom of the cycle, and there is a broad space for domestic substitution
After the PMI index returned to the boom and bust line in September 2023, the macroeconomic data in October 2023 has fallen, and the prosperity of the motion control industry continues to grind to the bottom. The manufacturing PMI index in September 2023 was 50.2%, returning to above the boom and bust line for the first time since April, rising month-on-month for four consecutive months. In October 2023, the manufacturing PMI fell to 49.5% due to factors such as the "National Day" holiday holiday and the early release of some pre-holiday demand.
Judging from the production index and production and business activity expectation index of the main downstream of the operation control market, the industry prosperity is expected to recover.
The production index continued to expand. The production index in October 2023 was 50.9%, still above the critical point. The production index of the main downstream agricultural and sideline food processing, automobile and other industries in the operation control industry was higher than 55.0%.
Market expectations are stable and improving. The expected index of production and business activities was 55.6%, an increase of 0.1 percentage points compared with September, and it was in a relatively high boom range for four consecutive months, and manufacturing enterprises had stable confidence in market development. The expected index of production and business activities of the main downstream agricultural and sideline food processing, wood processing and furniture, paper printing, automobile and other industries in the operation control industry is located in the high boom range of more than 60.0%, and enterprises are more optimistic about the development prospects of the industry.
In 2023, the localization rate of high-end AC servo systems may be less than 10%. The domestic servo system has seized the foreign share of the low-end industrial automation market by virtue of the advantages of high product cost performance, short delivery time and rapid response to customer needs. According to MIR Rui Industry, the market share of general servo systems in mainland China has gradually increased from 8% in 2019 to 37% in 2022Q4, but the localization rate of high-end general AC servo systems used in semiconductor equipment and CNC machine tools is less than 10%.
The localization rate of small PLCs in mainland China is about 19%, and the localization rate of large and medium-sized PLCs is less than 5%. PLC is the core component to ensure the safety of the industrial control industry chain, and the importance of independent control is significant, and the demand for domestic substitution is urgent.
2.3. Humanoid robots inject new growth momentum into the industry, and the importance of drives and controllers is highlighted
For humanoid robots, usually a complete closed-loop process of control feedback is: the CPU sends motion instructions to the controller, and the controller carries out motion trajectory planning after receiving the operation instructions, and sends control signals (0 and 1) to the driver; the driver converts the control signal into current and voltage signals; the execution motor completes the corresponding motion according to the set torque, speed, position and other command signals; and the measurement feedback device gives position feedback to the actual displacement of the detected moving parts to correct the deviation of the motor execution action. After the action command is completed, the controller sends an action end signal to the CPU to end the action command.
Humanoid robots have extremely high requirements for the real-time performance of the control system, and need to use a large number of controllers.
The Tesla robot consists of 28 integrated servo drive units (body joints) and 12 hand joints with high sensitivity requirements, as well as a large number of sensors.
For such a complex system, all algorithms need to meet the requirements of real-time, all servo joints must move synchronously, and sensor data must also be collected synchronously to ensure that the input and output of the algorithm are always in a beat, so as to ensure the motion performance of the robot. Therefore, a large number of controllers (control boards) must be used to ensure synchronization.
The use of a large number of controllers and the preset algorithm within each controller greatly reduces the pressure on the CPU. As a host computer, developers can preset joint movement algorithms in each controller in advance, and the brain can directly call them, which greatly reduces the pressure of computing and improves the feedback speed. Meet the needs of humanoid robots for low latency of joint actuators.
Low-voltage servo drives are the first choice for servo drives for humanoid robots.
There are three main reasons why humanoid robots use low-voltage servo drives: first, humanoid robots use battery power, and low-voltage servo drives meet the requirements of humanoid robots for working voltage. Second, in principle, low-voltage servos can achieve higher performance than high-voltage servos. Many low-voltage servos do not use IGBTs, but use MOS tubes, which have higher switching frequency and better driving performance. Thirdly, low-voltage servo drives are smaller than high-voltage servo drives. Low-voltage servo drives do not require a rectifier system (the function of the rectifier module is to convert alternating current to direct current), and low-voltage servo drives generally do not have IGBT modules.
The performance of the controller and drive determines the real-time performance of the humanoid robot control system and the steady-state of the motion process.
Tesla's humanoid robot is expected to bring tens of billions of incremental markets to motion controllers and low-voltage servo drives. We assume that the rotation and linear intra-articular controller of the humanoid robot are 1:1 in the number relationship of the driver, and the 12 joints of the hand are controlled by a low-voltage servo with an integrated driver and controller.
We estimate that the total value of the single controller, drive, and drive control all-in-one machine reaches 13,200 yuan. When Tesla's humanoid robot shipments reached 1 million units, we calculated that the controller and low-voltage servo drive would bring 13.2 billion yuan in incremental market.
Domestic manufacturers have strong strength in low-cost large-scale mass production and are expected to benefit.
Tesla robots already have very strong software and algorithm advantages, and the progress of implementation depends on the progress of hardware capacity construction and large-scale production cost reduction. The types of parts used in Tesla's robot joint module are basically the same as those of existing robots, there is no product from 0→1, the key design is completed by Tesla, and the follow-up production capacity support is coordinated by the supplier.
3. The company: step into the servo to open up the growth space, emerging markets bring new opportunities for growth
3.1. Self-developed drive control underlying algorithm, achieving the leading step drive and PC-based controller in China
The company has mastered the core technology of the driver and is the leading stepper system in China. Since 1999, when the company first launched its self-developed stepper drive, the company has continued to strengthen itself. He has mastered the modulation algorithm, the maximum torque control algorithm, and the core technologies such as step loss detection without position sensor for step drive, high-speed bus step drive, low-speed anti-vibration and noise suppression have reached the international advanced level.
The company's stepper system has ranked first in the domestic market for more than 10 consecutive years, and in 2023, Leisai intelligent stepper system will be listed on the list of the first batch of Shenzhen manufacturing single champion products.
Leisai Intelligent is the first company in China to realize closed-loop stepper drive technology. The company is the first manufacturer in China to realize closed-loop stepper drive technology, using encoder as position feedback, combined with closed-loop control algorithm, so that the stepper motor has servo closed-loop characteristics, can compensate for position deviation in real time, fundamentally solve the problem of traditional stepper motor step loss, and realize the high speed and high torque of closed-loop stepping.
With strong technical strength and brand effect, the company's stepper system has been a long-term and stable supply of leading enterprises in the engraving, laser, electronics, textile machinery and medical equipment industries.
The company has become a supplier to many well-known customers in the industry, including Han's Laser, Zoomlion, Lens Technology, Sanxing Precision, Kaxing CNC, Advanced Optoelectronics, Xiyu Electromechanical, Yinfan Electromechanical, Ruijie Machinery, etc.
The company's stepper system revenue as a whole showed a steady growth trend, and the compound growth rate of the company's stepper system revenue from 2019 to 2022 was 25%. In 2020, due to the substantial growth of high-end bus stepping system and closed-loop stepping system, the company's stepper system revenue increased by 50.8% year-on-year. Since 2022, the company's stepper system revenue growth has declined due to the weak downstream demand and the slow promotion of new products under the original sales model.
Since its development in 1998, the company's motion controller products have been continuously upgraded and grown into a leading enterprise of PC-base control cards in China. According to the company's prospectus data, in 2017, the company ranked second in the domestic general motion controller market share, at 16.6%, and in 2020, the company successfully launched a motion control PLC, and the sales scale continued to expand.
The operation efficiency and operation accuracy of the company's controller products rank among the top in China.
The evaluation index of the controller is mainly operation efficiency and operation accuracy. The company has independently developed high-speed two-dimensional position comparison output control technology, through the internal hardware nanosecond position comparison function, to avoid the inefficient comparison mode of PC, reduce the output response delay, and make the equipment run faster under the condition of unchanged accuracy; The company's product performance ranks among the top in China.
With excellent product performance, the company has established long-term cooperative relations with downstream electronic manufacturing equipment, industrial robots, semiconductors and other industry customers. The company's main customers include Foxconn, BYD, Shanghai Kehua, Han's Laser, Qifan Industrial Robot, Dingfeng Robot and other companies.
3.2. The stepper faucet cuts into the servo system to open up the growth space, and the driver and controller are expected to benefit from the new increment of the emerging industry
In 2020, the market size of China's stepper system was about 1.1 billion yuan, and the servo system can meet the motion control needs of higher-precision application scenarios, and MIR expects the market space to reach about 21.6 billion yuan in 2023.
The stepper system can meet most of the low-load/constant load low-speed working conditions, simple control, low cost, and is widely used in ordinary machine tools, textiles, packaging, electronic processing, instruments, laser processing, wire cutting, welding and other fields.
Due to the advantages of closed-loop feedback, the servo system can cover more scenarios that require precision, including CNC machine tools, precision machinery, lithium battery equipment, 3C electronics, new energy vehicles, robots, etc., so the market space is larger.
The company has invested in the research and development of servo systems since 2003, and has successfully developed 7 generations of servo drive products in more than 10 years, and launched a high-end servo system in 2022.
The company's servo system products include AC servo system, low-voltage servo system and direct drive servo. In terms of responsiveness, ease of use, encoder resolution, and real-time bus, it has reached the domestic leading level, and the terminal vibration suppression algorithm is equivalent to the international advanced level in terms of suppression frequency range, number of suppression and other indicators.
In 2022, the company's linear servo products will surpass the performance of foreign brands in the test performance of a major semiconductor customer, and have won large orders from many semiconductor customers, achieving the good results of direct drive new products that are explosive.
Based on breakthroughs in emerging markets such as photovoltaics, lithium batteries, and robots, the compound growth rate of the company's servo system revenue from 2019 to 2022 reached 37.4%, with outstanding performance.
According to MIR data, the market share of the company's servo system in 2022Q4 is 3%, and the company aims to increase its market share in the domestic servo system market in the new energy field to 10%.
In the future, with the upgrading of sales channels, the listing of high-end servo systems, and the realization of self-development and self-production of high-end encoders, the market share and gross profit margin of the company's servo system business are expected to be further improved.
The company is a scarce manufacturer in the first echelon of the domestic drive and controller field, and is expected to benefit from the new increase brought by the new market of humanoid robots. Controllers and drivers have high requirements for the underlying algorithm design, product performance and stability, and the client verification cycle is long.
Leisai Intelligent is a leading motion controller in China, and has long-term cooperation with customers in industrial robots and other industries, and has obvious advantages in product quality, performance and robot algorithm design.
The company started from the stepper drive, has more than 20 years of deep accumulation in the research of the driver, and is one of the few enterprises in China with the R&D and production capacity of low-voltage servo drive. The company is expected to benefit from the new demand from emerging markets, and the growth potential will be further enhanced.
4. Profit forecast and valuation
4.1. Profit forecast
Servo system business: According to MIR data, the domestic servo system market size will be 216/234/26.3 billion yuan from 2023 to 2025. In terms of sales, the company's market share in 2022 is 1.7%.
The company in the field of motion control system technology has a deep technical background, strong product strength, marketing reform to further enhance the company's sales ability, in the general trend of domestic substitution, the company's servo system market share is expected to increase.
It is estimated that from 2023 to 2025, the market share of the company's servo system will increase to 2.80%/4.0%/4.50% respectively, and the corresponding revenue will increase by 50.54%, 54.76% and 26.44% year-on-year respectively.
Revenue growth expands the scale effect, and it is expected that the gross profit margin of the company's servo system business will increase to 29.2% and 29.80% respectively from 2024 to 2025.
Control technology business: The downstream of the company's control technology business is mainly 3C, laser processing, industrial robots, and semiconductors. In 2023Q1, the market size of automation products in the domestic electronics and semiconductor manufacturing equipment industry decreased by 18% year-on-year, and the sales of the company's motion controller business were affected, but the company's large, medium and small PLC business continued to expand.
We forecast a 4% year-on-year decline in revenue from the company's control technology business in 2023. From 2024 to 2025, with the gradual recovery of the prosperity of the 3C industry, the sales scale of the company's PLC products in photovoltaic, lithium battery, logistics and other industries will be further expanded, and the company's control technology business revenue is expected to be +13.00% and 15.00% year-on-year.
Stepper system business: The company's downstream customers are mainly enterprises in the engraving, laser, electronics, textile machinery and medical equipment industries, and the market size of automation products in the above industries has declined year-on-year since 2022Q4. It is expected that the company's revenue in 2023 will be -4% year-on-year, and in 2024-2025, with the gradual recovery of downstream demand, revenue will be +9% and 10% year-on-year.
We forecast that the company's total revenue from 2023 to 2025 will be 15.0/19.2/2.28 billion yuan, +12.5%/27.8%/18.5% year-on-year, respectively. With the increase in the proportion of servo system business revenue, the company's comprehensive gross profit margin showed a downward trend, but the expansion of scale effect brought about an increase in net profit margin.
According to the 2023 semi-annual report, the company's equity incentive amortization expenses from 2023 to 2025 will be 45.472/2886.21/10.9674 million yuan respectively. To sum up, we predict that the company's net profit attributable to the parent company from 2023 to 2025 will be 1.41/2.17/308 million yuan respectively, a year-on-year increase of -36.0%/53.7%/42.0%.
4.2. Valuation
We selected Mingzhi Electric, Topband, HCFA Technology, and Inovance Technology, which are mainly engaged in core components of motion control, as comparable companies, corresponding to an average PE of 62.7/42.7/31.0 times from 2023 to 2025. We predict that the company's net profit attributable to the parent company in 2023-2025 will be 1.41/2.17/308 million yuan, EPS will be 0.46/0.70/0.99 yuan, and the corresponding PE of the current stock price will be 41.5/27.0/19.0 times. Below the average valuation of comparable companies.
The company has the know-how of the underlying algorithm of drive control, and is the leading stepper system and PC-based controller in China, and has ushered in rapid growth in the servo system. Benefiting from the recovery of industry demand, domestic substitution and the company's own sales and marketing reform, the company's revenue growth is expected to shift gears and profitability is expected to increase.
5. Risk Warning
The downstream recovery is less than expected, the progress of marketing reform and the development of servo system business are less than expected.
——————————————————
If there is any infringement, please delete it by private message, thank you!