(Report Producer/Analyst: Guojin Securities, Man Zaipeng, Chen Chuanhong)
1. Small and medium-sized fastener faucets, the performance has passed the dark period
1.1 Focus on automotive fasteners and connectors, and open up new aerospace business
Deeply cultivated automotive fasteners and connectors for many years, the acquisition of Chengdu Crescent Moon in 22 years to enter the aerospace field.
The company is a supplier of small and medium-sized fasteners and connectors in the automotive industry, and its downstream customers include domestic and foreign leading OEMs and Tier1 auto parts manufacturers.
In 22 years, the company acquired 52% of the shares of Chengdu Crescent for 122 million yuan, and expanded its business to the aerospace field.
With automobiles as the main line, the aerospace business contributed new growth points.
According to the company's 22 annual report, the automobile, electronic and electrical appliances, and aerospace businesses accounted for 76%, 16%, and 6% respectively.
1.2 Revenue is expected to return to high growth, and profitability is at a high level of comparable companies
Revenue: In 19-22, the company's revenue grew steadily, and the operating income increased from 307 million yuan in 19 to 470 million yuan in 22, with a CAGR of 11.7% during the period; Since the beginning of the year, the company has actively expanded customers in the field of new energy, and made efforts in overseas markets, with the smooth release of the production capacity of the Wuxi factory, it is optimistic that the company's follow-up revenue will return to high growth.
Profit: In the past three years, the company's net profit attributable to the parent company has continued to decline, mainly due to the increase in raw material prices, the increase in depreciation expenses of new factories, the loss of subsidiaries and other factors, with the gradual increase in the company's revenue volume in the next few years and the continuous emergence of scale effect, the company's profitability is expected to gradually recover to the level of 21 years, which will drive the release of performance.
Affected by multiple factors, the company's profitability is under pressure in the short term.
The company's gross profit margin has continued to decline since 2020, mainly due to the increase in depreciation and amortization and the increase in raw material prices, and the overall gross profit margin is expected to gradually recover to more than 30% of the previous level as the company's scale effect continues to emerge.
Compared with its peers, the company's profitability has been at a high level for a long time.
In recent years, the company's profitability has been at a high level of comparable companies for a long time, mainly due to three aspects: qualification, process and product system:
(1) Qualification: The company's products need to pass Tier 1 + OEM qualification certification, and there are certain requirements for relevant patents.
(2) Process design: The company participates in the front-end design process in some car companies, and the added value of products is higher.
(3) Complete products: The company's products include metal parts + plastic parts + special-shaped functional parts, and the sound product system provides customers with more choices.
The company's aggressive development of new energy vehicle customers, the construction of factories and the promotion of export business resulted in a high sales expense ratio and management expense ratio in the company's 23 years.
In 2023Q1-Q3, the company's sales expense ratio and management expense ratio were 3.50% and 9.39%, an increase of 1.03 and 1.17pcts compared with the end of 22. With the continuous improvement of the company's revenue scale and the continuous emergence of scale effects, it is expected that the company's sales and management expense ratio is expected to continue to compress in the next few years.
1.3 Equity incentives bind core employees to demonstrate confidence in high performance growth
Equity incentives bind core employees, demonstrating confidence in high performance growth. The company issued an equity incentive in August 22, with 1,668,600 incentive shares, accounting for 1.62% of the total share capital, and the grant price of restricted shares was 11.69 yuan.
The company-level performance appraisal requires that the operating income in 2021 be used as the base to set a revenue and net profit growth target for 2022-2025, requiring a revenue growth rate of not less than 17%/50%/85%/120%, or a net profit growth rate of not less than 5%/20%/50%/80%.
2. Automobile: The expansion of new energy vehicle customers is smooth, and exports are expected to become a new growth point
2.1 The company is a well-known manufacturer of automotive fasteners, supporting leading OEMs at home and abroad
The company is a well-known supplier of automotive fasteners in China, supporting the head OEM.
Fasteners play a key role in connecting, fixing and supporting various systems of automobiles, and are key products to ensure the stability and safety of automobile structures, and are used in interior and exterior decoration, body systems, power systems, battery packs and other links.
The company is a well-known Tier1/2 manufacturer of fasteners, including BYD and NIO as Tier 1, and indirect suppliers such as Wenjie, Ideal, Tesla, Geely and other manufacturers as Tier 2.
There are many technological processes in the fastener industry, and the production process has high requirements for manufacturers' equipment.
The production process of fasteners is cumbersome, requiring three stages of "material restructuring - blank forming (cold heading - turning - wire rolling) - surface treatment", and the investment amount of various production equipment is high, and there are certain financial barriers in the industry.
According to the company's prospectus, the total investment in various types of equipment required for the production of Wuxi plant exceeded 100 million yuan.
2.2 Domestic: China's automotive fastener market has a market size of more than 65 billion yuan, and the company actively promotes new energy vehicle products
China's automotive fastener market space is large, and the long-term demand is growing steadily.
According to the data of the joint research network, the scale of China's automotive fastener market reached 67.92 billion yuan in 22 years, a year-on-year increase of +6%, and the CAGR of China's automotive fastener market reached 7% in 18-22 years, with stable long-term demand.
The pattern of domestic automotive fasteners is relatively scattered.
In 2022, the company, Changhua Group, and Fawer will have a revenue scale of 4.7, 7.9, and 2.16 billion yuan respectively, and the company's revenue scale is less than that of Changhua Group and Fawer Co., Ltd., mainly because Changhua Group focuses on large-size fasteners, and Fawer Co., Ltd. is backed by FAW Group (revenue from FAW Group accounted for more than 70% in 20 years).
According to the data of the joint research network, the market share of the three companies in 22 years is 0.7%/1.2%/3.2% respectively, and the pattern of China's automotive fastener industry is relatively scattered.
Successfully cut into the top new energy vehicle companies, new energy vehicle customers are expected to continue to contribute to revenue growth.
With the continuous improvement of the penetration rate of new energy vehicles, the company actively promotes customers in the field of new energy vehicles, and at present, fasteners/connectors have successfully entered the supply system of many leading OEMs such as BYD and Tesla, and the business in the field of new energy vehicles is progressing smoothly.
Actively research and develop supporting new energy vehicle products, and the new energy vehicle business accounts for about 30% of the revenue.
In recent years, the company has vigorously promoted the research and development and implementation of fasteners such as battery packs, motor electronic control, chassis and body of new energy vehicles, and the proportion of new energy vehicle business revenue has continued to increase, from 6.6% in 21 years to 11.8% in 22 years, according to the company's investor exchange records, the company's new energy vehicle business revenue accounts for about 30% (compared with 22 years, an increase of nearly 20pcts), with BYD, NIO and other leading customer orders continue to land, and we are optimistic that the proportion of the company's new energy vehicle business revenue will further increase in the future.
The IPO fundraising project was launched, opening up the long-term capacity bottleneck.
According to the company's prospectus data, in 18-20 years, the company's capacity utilization rate of screws and bolts and special-shaped parts was close to 100%, and the company's IPO fund-raising project expanded its production capacity in Wuxi factory, and the production capacity of screws and bolts and special-shaped parts expanded by 53,000 and 10,000 pieces respectively, which increased by 35% and 135% respectively compared with 20 years. With the continuous release of production capacity and the smooth landing of orders in the field of new energy vehicles, we are optimistic about the rapid growth of the company's automobile business.
2.3 Overseas: Mexico's overseas warehouses are progressing smoothly, and exports are expected to become a new growth point
The global automotive fastener market size is expected to be USD 23.70 billion in 2023.
According to QY Research, the global automotive fastener market size was valued at $23.17 billion in '22 and is expected to reach $25.71 billion in 2026, with a CAGR of 2.6% during the period.
From the perspective of demand structure, the demand for automotive fasteners in overseas markets is strong, and the market size of automotive fasteners in overseas markets accounts for 56.4% of the global market size.
According to the demand of the global fastener market, the overseas market demand is large, and we believe that the key to the smooth export of fasteners by domestic manufacturers lies in the cost performance of products and related qualification certification.
1) Cost-effective: According to the data of the General Administration of Customs of China, the average import and export prices of fasteners in mainland China in 2022 will be 7.5 and 19,000 yuan/ton respectively, with an obvious average price gap, and price advantage is the core element for domestic manufacturers to seize overseas market share.
2) Qualification certification: Overseas leading OEMs have high requirements for the qualification certification of fastener products, and Tier2 manufacturers need to pass the certification of both automobile OEMs and Tier1 suppliers, and qualification requirements are one of the barriers to the export of domestic fastener manufacturers.
The company has a price advantage and complete relevant qualifications, and is optimistic that the company will gradually enter the overseas market. Among the manufacturers supporting the company in the early stage, the customers are well-known Tier1 suppliers such as Magna, Valeo, Bosch, etc., and the relevant qualification certification has been obtained in the early stage.
Judging from the current progress, the company plans to build an overseas warehouse in Mexico to support high-quality customers. According to the company's investor communication response, the company plans to build an overseas warehouse in the Mexican factory and is expected to be completed in 23Q4, officially entering the overseas market, and the export business is expected to enter a period of rapid growth.
To open up overseas markets, it is expected to benchmark the industry leader Yi Jiete in the long term. The company is expected to successfully open the Mexican market with the cost-effective advantages of products and related certification qualifications, and with the smooth progress of overseas customers, the company is expected to become a global fastener enterprise in the medium and long term. Referring to the overseas fastener leader Ejiete (22 years of revenue of more than 720 million euros), the company's export business still has a lot of room for growth in the long term.
3. Aerospace: Acquired Chengdu Crescent and entered the aerospace track
3.1 Acquired Chengdu Crescent and opened up the aerospace track
The company holds 62.68% of the equity of Chengdu Crescent and enters the aerospace field.
In March 2022, the company acquired a 52% stake in Chengdu Crescent for 120 million yuan and entered the aerospace track. Affected by Chengdu's power rationing, epidemic and other reasons, the delivery of some orders in Chengdu Crescent in 22 years was delayed, and key imported raw materials could not be in place, which led to the subsidiary's failure to meet performance commitments, and the original controlling shareholder compensated the company with 10.67% equity, and up to now, the company has held 62.68% equity of Chengdu Crescent.
Chengdu Crescent is in the middle of the aerospace manufacturing industry chain. The upstream of the aviation industry chain is the raw materials, equipment, energy and other industries, the midstream is the parts manufacturing link, the downstream is the main engine factory, the general/subcontractor, and the terminal is the demand side of military and democratic machine products.
Chengdu Crescent is mainly responsible for the machining of aerospace parts, and the downstream is military aircraft OEMs, aviation manufacturing units and aerospace customers.
Chengdu Crescent's business is mainly to machine the parts or plates forged upstream to achieve the required precision requirements.
Due to the high requirements for high temperature resistance, high pressure resistance and corrosion resistance of aerospace products, the materials to be processed are mostly special or composite materials, which are difficult to process.
At the same time, aerospace customers have high requirements for supplier qualifications, and only a few qualified manufacturers with strong processing capacity can obtain supporting shares.
Affected by multiple factors, Chengdu Crescent's net profit in 22 years was under pressure.
In 22, affected by factors such as the epidemic, the Russian-Ukrainian war, and the summer power rationing in Chengdu, the company's holding subsidiary Chengdu Crescent customer orders were delayed, key imported materials could not be put in place, and the production operating rate was insufficient, and the performance was under pressure in the short term.
According to the company's investor communication response, the company's early development of aircraft, space rockets and other projects in the second half of 23 has been gradually mass-produced, and the current downstream bidding has entered the norm, orders are full, and the revenue of the subsidiary Chengdu Crescent is expected to usher in growth next year.
3.2 The core suppliers of aerospace machining parts, cutting into the field of low-orbit satellites, are expected to benefit from the high prosperity of the industry
With its machining background in the aerospace field, its subsidiary Chengdu Crescent currently has the ability to process low-orbit satellite parts, which may benefit from the acceleration of satellite industrialization.
According to the information of the company's public performance briefing, the company has the processing capacity of low-orbit satellite parts:
(1) Technology and qualification: The company is a core machining manufacturer of military aircraft and rocket parts, especially good at the composite processing of complex structural parts, thin-walled parts and special materials;
(2) Customers: The company has served aerospace customers for a long time, and has sufficient customer reserves and recognition in the aerospace field, and most of the customers in the satellite field are aerospace enterprises, and there is a certain overlap in customers.
(3) Progress: The company has accumulated deep experience in the field of aerospace parts machining, and according to the company's investor interactive platform, Chengdu Crescent has obtained orders for commercial aerospace rocket parts and delivered them to customers in small batches.
The global satellite industry is booming, and the number of satellite launches is increasing rapidly.
According to SIA data, the global satellite manufacturing scale reached $15.8 billion in 22 years, and the industry is growing steadily. The number of global satellite launches increased from 314 in 2018 to 2,325 in 22 years, with a CAGR of 65.0% during the period.
Low Earth Orbit (LEO) satellites have several advantages and have become the mainstream of satellite communication schemes.
LEO satellites have many advantages, such as low propagation delay, high communication quality, and low manufacturing cost. According to SIA data, the increase in the number of commercial satellite purchases worldwide in 22 was mainly due to the increase in the number of low-cost low-earth orbit (LEO) satellite launches.
According to SIA's forecast, LEO (low-orbit satellite) communication capacity will account for 83% in 2023, while MEO (medium-orbit satellite) and GEO (high-orbit satellite) will account for only 11% and 6% respectively.
With the help of policies, the Yangtze River Delta region is expected to form an annual production capacity of 600 commercial satellites, and the industrialization process will be accelerated.
Shanghai issued the "Shanghai Action Plan for Promoting the Development of Commercial Aerospace and Building a Highland for the Space Information Industry (2023-2025)", which plans to build an industrial chain with an annual output of 50 commercial rockets and 600 commercial satellites in the Yangtze River Delta region by 2025.
With the acceleration of the industrialization of low-orbit satellites in the next few years, the machining demand in the field of low-orbit satellites is expected to continue to be released, and the company is optimistic that the company will fully benefit from the high prosperity of the low-orbit satellite field in the future.
4. Earnings forecasts and valuations
4.1 Profit Forecast
We expect that the company's operating income in 23-25 years will be 5.02/7.56/957 million yuan, net profit attributable to the parent company will be 0.44/1.06/148 million yuan, and the corresponding EPS will be 0.42/1.02/1.42 yuan.
1. Automobile business:
Revenue: The company is a core supplier of small and medium-sized fasteners for automobiles in China, with customers covering well-known OEMs and Tier1 customers at home and abroad, the slowdown in automotive business revenue growth in 22-23 years is mainly due to the slowdown in demand for fuel vehicle-related products and the impact of the epidemic on delivery, with the gradual delivery of product orders in the field of new energy and the smooth progress of overseas markets, we are optimistic about the rapid growth of the company's automotive business revenue, and it is expected that the company's automotive business revenue in 23-25 years will be 3.82/5.70/713 million yuan, a year-on-year increase of +7.0%/ 48.8%/25.2%。
After the landing of Wuxi production capacity, it is enough to support the continuous release of the company's output value: according to the company's prospectus, after the Wuxi Chaojie project reaches production, it is expected to achieve an annual output of 53000000 screws/nuts and 10000000 special-shaped connectors, according to the current company's product price calculation, Wuxi's production capacity is expected to increase the output value of 3~400 million yuan after landing, which is enough to support the company's automotive business revenue growth in the next 3 years.
Gross profit margin: 23H1 The company's gross profit margin was 25.71% (-4.88pcts year-on-year), and the company's gross profit margin was mainly affected by the fixed depreciation and amortization of the Wuxi plant in 23H1, according to the disclosure of the 23H1 interim report, the depreciation of fixed assets, oil and gas assets, and the depreciation of productive biological assets reached 15.28 million yuan, an increase of 8.84 million yuan over 22H1, and if the impact of the project is excluded, the gross profit margin of 23H1 will reach 30.1%; The company's automobile business revenue continues to grow, the impact of depreciation and amortization of fixed assets is expected to slow down, superimposed on the export business, optimistic about the company's 24-year gross profit margin gradually repaired, is expected to 23-25 years of the company's automobile business gross profit margin of 26.2%/28.1%/29.0%.
2. Aerospace:
Revenue: The main body of the company's aerospace business is Chengdu Crescent, a holding subsidiary acquired in 22, and the revenue growth rate of Chengdu Crescent in 22-23 declined, mainly due to the epidemic, power rationing in Chengdu and delayed bidding for military orders. However, according to the company's latest investor communication records, the current downstream orders are under normal bidding, and the company's orders are sufficient. At the same time, the rocket and military aircraft projects laid out in the early stage of Chengdu Crescent are expected to be successively expanded, and the aerospace business is expected to be repaired in 23-25 years, and the aerospace business revenue is expected to be 0.45/1.05/155 million yuan respectively.
Gross profit margin: The downstream of the company's aerospace business is mainly a military system enterprise, with high requirements for the production qualification of military products and high added value of products, with the gradual delivery of aerospace orders, the scale effect of the aerospace business is expected to increase, and we expect the gross profit margin of the business to be 34.0%/36.0%/36.0% in 23-25 years.
3. Electronic appliances:
The company's electronic and electrical business is mainly downstream of home appliances and communication base station antennas, and its end customers are Daikin Air Conditioning, Panasonic, Toshiba and other enterprises. At present, the domestic electrical industry has entered a stable stage, and it is expected that the revenue of electronic appliances in 23-25 years will be 0.70/0.77/0.84 million yuan;
Gross Margin: As the impact of raw materials on the gross margin of the company's products gradually weakens, the gross profit margin is expected to be 24.0%/26.0%/26.0% in 23-25 years.
Expense Ratio Forecast:
Considering the subsequent release of new production capacity and the gradual increase in aerospace orders, the scale effect is expected to continue to appear, and we expect the company's sales rate and management fee rate to continue to compress in 23-25 years, with an estimated sales rate of 3.5%/3.0%/2.7% and a management fee rate of 8.0%/6.0%/5.3% in 23-25 years.
4.2 Valuation
We choose Changhua Group, Ruima Precision, and Best as comparable companies. We estimate that the company's net profit attributable to the parent company in 2023-2025 will be 0.44/1.06/148 million yuan, and the corresponding PE will be 78/32/23 times respectively.
Referring to the valuation of comparable companies, considering the smooth progress of the company's new energy vehicle customers, the expected continuous increase in export business, and the continuous recovery of the aerospace business, we are optimistic about the company's high performance growth in 24-25 years, and give the company 27 times PE in 2025, with a reasonable valuation of 3.996 billion yuan and a corresponding target price of 38.34 yuan.
5. Risk Warning
Aerospace business tenders fall short of the expected risk.
The downstream of aerospace is mainly military customers, and if the downstream bidding is delayed, it may adversely affect the performance of the aerospace business.
The risk that car sales will fall short of expectations.
The company's automotive fastener business accounts for more than 75% of the revenue, and the main orders are highly correlated with the sales volume of downstream OEMs, and if the sales performance of supporting OEMs is poor, it may have an adverse impact on the company's performance.
There is a risk that the ramp-up of factory capacity will not be as fast as expected.
The company's business growth in the past two years is mainly due to capacity constraints, and the expansion of production capacity in Wuxi has been put into production, if the ramp-up speed of production capacity is not as expected, it may affect the overall performance.
Risk of loss of key customers.
In the automotive industry, the company mainly supplies OEMs through Tier1 manufacturers, and if orders from key Tier1 customers decrease, it may adversely affect the company's performance.
Risk of lifting the ban on restricted shares.
1) On October 13, 2023, 333,700 restricted shares of equity incentive were lifted, accounting for 0.75% of the outstanding shares after the lifting;
2) On June 3, 2024, 58,495,400 restricted shares of the original shareholders were lifted, accounting for 55.98% of the total share capital after the lifting.
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The report comes from [Foresight Think Tank]