ZONGSHEN POWER(001696) 华创证券·2024-11-20 07:50Investment Rating - The report gives a "Recommend" rating for Zongshen Power (001696) with a current price of 27.62 yuan [2] Core Views - Zongshen Power is positioned as a key player in the low-altitude economy, with three main growth drivers: Zongshen Aero Engine, Zongshen Motorcycle Engine, and Zongshen General Machinery [2][8] - The company is expected to benefit from the booming low-altitude economy, especially in the drone and light general aviation markets [8][9] - The acquisition of Longxin General Machinery is seen as a strategic move to enhance synergies and strengthen market competitiveness [9][113] Business Segments Summary Zongshen Aero Engine - Focuses on small and medium-sized aviation piston engines, covering the drone and light general aviation markets [2][8] - In H1 2024, revenue reached 100 million yuan, up 127% YoY, with a profit of 17.11 million yuan, compared to a loss of 10.73 million yuan in H1 2023 [2][50] - The company is accelerating airworthiness certification and hybrid engine R&D, with products already used in drones like Rainbow and Wing Loong [2][49] - Plans to spin off the aero engine business for an IPO to unlock value [9][63] Zongshen Motorcycle Engine - A leading domestic motorcycle engine manufacturer with over 30 years of experience [67][68] - In 2023, sales reached 2.52 million units, up 12.98% YoY, with revenue of 3.36 billion yuan, accounting for 41% of total revenue [30][31] - The company is benefiting from the domestic demand for large-displacement motorcycles, with a CAGR of 24.28% for 250CC+ motorcycles over the past five years [9][84] - Exports are growing, with 831,680 units exported in 2023, up 8.79% YoY, including 198,000 units of 250CC+ motorcycles, up 54.90% YoY [9][92] Zongshen General Machinery - The company is moving up the value chain in general machinery, with single-unit revenue increasing from 677 yuan in 2014 to 1,097 yuan in 2023, a CAGR of 5.5% [9][101] - In H1 2024, sales reached 2.23 million units, up 25.14% YoY, driven by traditional product sales and new drone generator business [99][101] - Compared to Honda, Zongshen's general machinery revenue is only 15% of Honda's, with significant room for growth in both volume and price [107] Acquisition of Longxin General Machinery - Zongshen New Manufacturing plans to acquire 24.5513% of Longxin General Machinery for 3.346 billion yuan, becoming the controlling shareholder [111][112] - The acquisition is expected to create synergies in motorcycle and general machinery businesses, with Longxin producing 93% of Zongshen's motorcycle engines and 86% of general machinery products in 2023 [113][114] - The integration is seen as a strategic move to enhance market position and competitiveness in both domestic and export markets [114]