Thank you for this little essay for giving Starry Sky Jun the inspiration for analysis.
Last time, I dismantled Visionox for you, and today I dismantle Sanhua Intelligent Control.
Sanhua Intelligent Control is not only a first-tier supplier of Tesla, but also a first-tier supplier of BYD and the exclusive supplier of Fodi, and even a first-tier supplier of air conditioning companies such as Gree and Midea.
What's even more outrageous is that Sanhua's air conditioning accessories business, both in terms of sales and operating profits, is far greater than that of new energy vehicles.
In 2023, the company's gross profit margin will increase when Tesla's procurement volume slows down and BYD's procurement volume increases.
What does this mean?
It shows that the gross profit margin given by domestic head enterprises has increased, and the side shows that it has contributed to the industrial chain and social responsibility.
Explain that the face of the writer of the small essay snapped.
Of course, there must be some suppliers with lower technical content who are under pressure to reduce prices. These problems are not entirely in the head enterprises, but in the lack of timely technological transformation.
The route of the rise of Chinese enterprises is not exactly the same as that of traditional enterprises in Europe and the United States, relying on the first-mover advantage, a platform is still selling cars for 20 years, which is unrealistic for Chinese enterprises.
It is necessary to rely on rapid upgrade and iteration and better cost performance to break the monopoly position of traditional European and American car companies.
Otherwise, by what? Sell a car at a markup?
Everyone should think about the case of Sanhua Intelligent Control: how did the company increase the gross profit margin even though the price dropped?
This is the new quality of productivity.
First, the core of new quality productivity is research and development
The gross profit margin of Sanhua's automobile segment is about 27%, and the gross profit margin of the air conditioning segment is about 28%.
Most automobile and air conditioning manufacturers can't earn this gross profit margin, in the field of automobiles and home appliances that are stimulated by competition, is Tesla, BYD, Gree, and Midea "rewarding" the gross profit margin of Sanhua Intelligent Control?
No, striking iron still needs its own hardness, and Sanhua Intelligent Control's R&D expenses in 2023 will be as high as 1.1 billion yuan.
Source: Straight Flush ifind, Graphics: Poetry and the Stars
In a fully competitive market economy, there is no such thing as squeezing suppliers.
Why do car companies buy Bosch? Is it because BBA has a broken brain and deliberately pays a high price to support it?
Essentially, it's because it's expensive, but it's irreplaceable.
For suppliers, the price can not be sold, instead of complaining about being squeezed, it is better to think about why it can't be sold to others at a high price, it is better to look at their own R&D department, whether there is a high salary and high education.
As an automobile and air-conditioning parts company, Sanhua Intelligent Control is a very traditional manufacturing enterprise, with nearly 1,000 masters!
In 2023 alone, the company will increase its R&D personnel by more than 1,000 people, and its production personnel will increase by more than 1,600 people over the same period. This shows that the company attaches great importance to R&D and regards R&D as its life.
In 2019, when the country once again launched the policy of additional deduction of R&D expenditure, Xingkong Jun wrote that the essence of future industrial upgrading is human competition. The main component of R&D expenditure of most enterprises is the salary of R&D personnel.
Just as enterprises that did not pay attention to equipment upgrades in the 90s will inevitably be eliminated, enterprises that do not pay attention to talents now will inevitably be eliminated.
Don't look at the current high degree of talent to find a job is very stressful, 3-5 years later, the industrial upgrading will have the initial effect, the job market situation will change dramatically.
Enterprises that can't afford to engage in R&D with high salaries, what qualifications do they have to complain about the price reduction of OEMs?
2. The core business of Sanhua Intelligent Control
The company is mainly engaged in two major businesses.
First, refrigeration and air conditioning electrical parts business: the company is committed to the professional operation of building HVAC and electrical equipment, and its main products include four-way reversing valves, electronic expansion valves, solenoid valves, micro-channel heat exchangers, Omega pumps, etc., which are widely used in air conditioners, refrigerators, cold chain logistics, dishwashers and other fields.
The second is the auto parts business: the company focuses on in-depth research in the field of automotive thermal management, and its main products include thermal expansion valves, electronic expansion valves, electronic water pumps, and integrated components for thermal management of new energy vehicles, which are widely used in new energy vehicles and traditional fuel vehicles.
In fact, Sanhua's core business is air conditioning and refrigerator accessories.
Source: Straight Flush ifind, Graphics: Poetry and the Stars
In terms of revenue composition, the automobile business is about 10 billion yuan, and the air conditioning and refrigerator business is about 15 billion yuan. The sales volume of the largest customer was 3.582 billion yuan, accounting for 14.59% of the revenue; The sales volume of the second largest customer was 2.134 billion yuan, accounting for 8.69% of the revenue.
Considering that the air conditioning and refrigerator business has been relatively stable in the past two years, in 2022, the company's first largest customer sales will only be 2.8 billion yuan, and the second largest customer sales will be 1.9 billion yuan, so Xingkong Jun guesses that the first largest customer is most likely BYD, whose performance has soared.
In this way, the little essay writer's views on Tesla's support for Sanhua Intelligent Control can be directly applied to BYD.
3. Free cash flow
The golden indicator to measure whether a business is really profitable is free cash flow, however, the standard free cash flow calculation formula is very cumbersome, and Xingkong Jun recommends using a simplified version to evaluate:
Net operating cash flow minus investment cash flow expenses for the purchase and construction of fixed assets and construction in progress.
Source: Straight Flush ifind, Graphics: Poetry and the Stars
The company's free cash flow in 2021 and 2022 was negative, mainly due to the company's huge investment in the purchase and construction of fixed assets, construction in progress and intangible assets (land).
In fact, the investment in 2023 is also relatively high, but the net operating cash flow performance is excellent, and the free cash flow is high.
In line with this trend, the company's free cash flow will reach a new high in 2024.
4. Robotics and energy storage
The company launched two new businesses, namely robotics and energy storage. These are two more forward-looking investments, but there is also a certain degree of uncertainty, whether it will bring better benefits in the future, is still unknown.
The development of artificial intelligence is rising day by day, and the bionic robot industry is advancing with each passing day, which is expected to become a disruptive industry after computers, smartphones and new energy vehicles. With great development potential and wide application prospects, it is a new track for the future industry. In the field of bionic robots, the company focuses on electromechanical actuators and fully cooperates with customers for product development, trial production and iteration. According to the company's announcement, it is planned to invest in the construction of a R&D and production base project for robot electromechanical actuators and domain controllers in Qiantang District, with a total planned investment of not less than 3.8 billion yuan.
The company closely tracks the development trend of energy storage system technology, simultaneously promotes the expansion of market opportunities for application parts in the field of energy storage, and the development of energy storage thermal management units, forming a relatively complete unit product series, which is listed as a supporting tool for head customers, laying the foundation for the subsequent development of products with technical advantages.