2021-10-29 Ma Liang of Anxin Securities Co., Ltd. conducted research on Lingdian Electronic Control and published the research report “Q3 Performance Meets Expectations, Domestic Replacement Growth Can Be Expected”. This report gave Ryoden Electronic Control a buying rating, believing that its target price is 150.00 yuan, the current stock price is 127.0 yuan, and the expected increase is 18.11%.

　　Ryoden Electric Control (688667)
　　Incident: On the evening of October 28, the company released its third quarter report. The company's revenue for the first three quarters was 598 million yuan, up 16.65% year on year; net profit was 121 million yuan, up 17.12% year on year; net profit after deducting non-return mother was 103 million yuan, up 5.52% year on year. Q3 had quarterly revenue of 174 million yuan, down 9.60% year on year; net profit of 42 million yuan, up 15.61% year on year; net profit after deducting non-return net profit of 33 million yuan, up 1.94% year on year.
　　Q3 performance was in line with expectations, and profitability increased steadily: the company's gross margin for the first three quarters was 30.15%, net profit margin was 20.23%, Q3 single-quarter gross profit margin was 31.73% (+3.56pcts), and net profit margin was 24.12% (+4.63pcts), continuously enhancing profitability. The company's R&D investment continued to increase. In the first three quarters, R&D investment was 53 million yuan (yoy +51.97%), accounting for 8.87% of revenue (+2.06pcts); Q3 R&D investment was 19 million yuan (yoy +52.39%), accounting for 10.82% of revenue (+4.4pcts). This is mainly due to the expansion of the company's scale and the increase in R&D projects, the company's investment in R&D, and the increase in expenses related to personnel, equipment, materials and testing.
　　The number of major customers continues to increase, opening up market space: automotive engine control systems (EMS) are one of the core parts of automotive electronics, especially in the EMS field for middle and high-end passenger cars, and are basically monopolized by multinational companies. The company is a scarce domestic EMS manufacturer. The main business types include traditional models (EMS, PFI, GDI, dual-fuel models, etc.), new energy models (GCU, MCU, VCU), and intelligent connectivity (T-BOX, etc.), focusing on promoting the industrialization of GDI models, new energy vehicles, and T-boxes. The product is in a market-leading position in the N1 class gasoline EMS field. It has gained a certain market share in the M1 class cross passenger car market and has begun to gradually enter the M2 class market. Since the launch, the number of new major customers has entered is the sum of the numbers in history. It is expected that sales revenue will be gradually generated over the next two years, and the mainstream passenger car market will continue to be developed by relying on the advantages of the GDI platform. According to the company's announcement on October 18, the company signed a strategic cooperation with Sensata in the field of automotive power sensors. In the long run, we believe it will help the company enhance the quality advantages of EMS products, guarantee product supply, and enhance brand influence and core competitiveness.
　　National 6 RDE policy supports, and continues to benefit from domestic substitution: National 6 RDE regulations (that is, actual road pollutant emissions) are delayed until July 1, 2023 due to technical difficulties, the regulations require higher implementation requirements and shorter preparation time for car companies. Multinational EMS companies have limited ability to undertake projects, their competitiveness has declined, and they are gradually withdrawing from the domestic market. The company has the advantages of rapid verification and development of independent enterprises and the speed of technology iteration, continuously optimizes costs, and increases market share, leading to increased revenue from technical services. According to the records of investor relations activities in September, the company plans to add about 20 engine bench laboratories, 2 emission laboratories, and 2 new energy laboratories to meet project requirements for technical requirements such as emissions and low temperature start-up under the country's sixth phase of new regulations. It is expected that construction and production will be basically completed and put into operation next year. The management of “large tonnes and small standards” of blue light trucks has driven the trend of blue light trucks under 4.5 tons to 3.5-ton gasoline vehicles, and from diesel engines to gasoline engines. It is expected that as car ownership and industry concentration increase, the company will continue to benefit from the light truck market.
　　Investment suggestions: We expect the company's revenue from 2021 to 2023 to be 1,054 million yuan, 1,333 billion yuan and 1,535 million yuan respectively, net profit of 235 million yuan, 334 million yuan, 377 million yuan, EPS of 4.55 yuan, 6.47 yuan and 7.31 yuan respectively, corresponding PE of 26 times, 18 times and 16 times, respectively, maintaining the “buy-A” investment rating.
　　Risk warning: procurement risk due to tight chip supply; risk of high customer concentration; risk of increased market competition in the automotive industry; risk that localization of core components falls short of expectations.

In the last 90 days of the stock, a total of 5 institutions gave ratings and 5 buying ratings; the average institutional target price for the past 90 days was 195.19; according to the Securities Star valuation analysis tool, Ryoden Electronic Control (688667) has a good company rating of 3 stars, a good price rating of 1 star, and an overall valuation rating of 2 stars.