With an in-depth presence in high-end precision manufacturing, Baosi has independently cultivated two businesses: compressors and vacuum pumps. The Company's GSC series oil-free screw vacuum pump units, equipped with a low-oxygen crystal pulling furnace, can eliminate the concentric circle defects of tunnel oxide passivated contact (TOPCon) at a lower cost. As it continues to gain customer recognition, this product may become a new earnings driver. Baosi plans to refocus on its dual main businesses by selling its acquired assets. In the future, while developing energy-saving and efficient compressors, it will further increase its investment in vacuum pump products, expand new application markets, such as photovoltaic (PV) cells, lithium batteries, and semiconductors, striving to create the world's leading vacuum pump brand. We forecast 2023E-25E EPS of Rmb0.32/0.40/0.47, respectively. Combining the results of two valuation methods, we believe Baosi deserves a reasonable 2024E valuation of Rmb5.3bn, corresponding to a target price of Rmb8. We initiate coverage with a "BUY" rating.

Single champion of screw compressors, Baosi builds the vacuum pump business through a decade of development.

Baosi independently cultivates two businesses: compressors and vacuum pumps, while acquiring cutting tools and hydraulic pump businesses. The Company's screw compressor is among the fifth batch of national manufacturing single-champion products, and its technology is in the leading position in the industry. The customer recognition of the Company's vacuum pump products continues to improve, and the growth rate of the products has increased significantly, likely to bring new growth points to the Company. The main businesses of Baosi continue to grow, the expense ratio is stable and declining, and the Company's revenue and net profit have reached an inflection point.

Vacuum pump: Rich downstream application scenarios, and accelerating domestic substitution in the high-end market.

Vacuum pumps are the heart of vacuum systems and are widely used in advanced manufacturing. According to Mordor Intelligence, the global vacuum pump market size was US$5.6bn in 2021, and is expected to reach US$8.0bn in 2026. At present, the global vacuum pump market is dominated by overseas vacuum giants such as Atlas, Ebara, and Pfeiffer. With the rapid development of domestic industries such as PV, LIB, display panels, and semiconductors in recent years, a stable demand for high-end vacuum pump markets has formed in China. Driven by cost, service advantages, and the need to cultivate domestic suppliers, domestic vacuum pumps are expected　to enter the high-end market. According to our calculations, the market size of vacuum pumps in emerging fields will reach Rmb19.7bn by 2025.

Air compressor: Universal equipment with a clear trend towards energy conservation and efficiency.

Air compressors belong to general machinery, and are mainly used to provide air power for various industrial manufacturing. The competitive landscape of air compressors in China is relatively scattered, and the current high-end market is still dominated by overseas enterprises. Domestic enterprises are independently developing "permanent magnet variable frequency + two-stage compression" screw compressors and are entering the high-end air compressor market. Air compressors are heavy energy consumption equipment. We estimate that the energy saving benefits brought by technological upgrading in the domestic market are nearly Rmb100bn. The high-end manufacturing industry is highly sensitive to the air environment, and oil-free screw compressors are gaining increasing attention and application.

Company advantage: High-quality product customers; selling subsidiaries to promote the upgrading of the main business.

In the production of TOPCon, there are relatively more high-temperature processes, and the crystal quality is required to be higher. The Company's oil- free screw vacuum pump is matched with a low oxygen crystallization furnace, which can eliminate concentric circle defects at a low cost. Relying on the thermal field design of the single crystal furnace route, the Company has developed a group of high-quality customers in the PV field. Baosi continues to optimize resource allocation: According to its announcement, Baosi has disposed of its precision transmission business and partial equity of Ahno Tool. At the same time, Baosi has reached an intention to sell with Sandvik and Shaoyang Hydraulic, and may continue to sell Ahno Tool and the hydraulic pump business. Baosi plans to use the recovered funds for compressor and vacuum pump businesses, actively promoting the expansion of its main businesses and equipment upgrading.

Potential risks: Fluctuations associated with macroeconomic cycles; intensified market competition; risks associated with the transfer of acquired assets; management risks; slow product iterations and upgrades; raw material price fluctuations.

Investment recommendation: Baosi plans to sell its acquired assets to refocus on its dual main businesses of compressors and vacuum pumps, actively promoting the expansion of the main businesses and equipment upgrading. We forecast 2023E-25E EPS of Rmb0.32/0.40/0.47. Based on the absolute valuation method, the reasonable valuation of the Company is calculated to be Rmb5.3bn. Based on the average PE multiple of comparable companies (19x 2024E PE for Hanbell (002158.SZ), Kaishan Group (300257.SZ), East Asia Machinery (301028.SZ), Cigu Technology (688448.SH), OKE Precision Cutting Tools (688308.SH), based on Choice consensus estimates), we assign 20x 2024E PE to derive a TP of Rmb8 for Baosi and initiate coverage with a "BUY" rating.