Investment highlights
For the first time, it covered FAW Jiefang (000800) and gave it an outperforming industry rating. The target price was 14.06 yuan, corresponding to 14.6x P/E in 2022. The reasons are as follows:
Leading heavy truck companies continue to benefit from the high level of prosperity in the industry. The company's heavy truck sales CAGR in 2017-2020 was 14.18%, and the market share increased from 19.7% to 22.2%, ranking first in the industry for four consecutive years. Heavy trucks are an important means of production, and downstream demand comes from a wide range of sources. We have determined through the “five factor method” split measurement that road cargo traffic will help the heavy truck sales center shift upward, and sales will still be supported in the next three years. We believe that the four major trends of iteration of environmental protection standards, electrification transformation, intelligent upgrading, and high-end domestic heavy trucks are expected to drive an increase in the value of heavy trucks and bicycles. As a leading domestic heavy truck company, the company will continue to benefit from the high level of prosperity in the industry and achieve a sharp rise in volume and price.
Integrated R&D and manufacturing capabilities are strong, and the product matrix covers a comprehensive and forward-looking layout of new energy sources. The company adheres to an independent development route, has a global R&D base, and has integrated commercial vehicle manufacturing capabilities from the three core assemblies of the chassis bridge to the complete vehicle. The company's semi-trailer tractors have traditional advantages, and have taken the lead in expanding products into market segments to meet the professional needs of users. Furthermore, the company has independently controlled the core components and core technology of new energy products, and has launched new energy medium and heavy truck products in a forward-looking manner, covering various technology routes and application scenarios.
By laying out new business formats, the autonomous driving business is expected to open up medium- to long-term profit margins. The company laid out a new format of smart logistics in Columbus through the establishment of joint ventures, Zhitu Technology, Yukuai Chuangling, and Fujie Technology. The Jiefang J7L3 class autonomous tractor developed by the company in cooperation with Zhitu Technology has been mass-produced, and the commercialization of autonomous heavy trucks is in a leading position in China. We believe that by participating in shares to independently control the core software and hardware of autonomous driving, the future commercial operation of J7 will provide a large amount of data, which will help the company achieve rapid iterative evolution and strengthen the advantages of autonomous driving.
What's the biggest difference between us and the market? The market paid little attention to the company's autonomous driving business. We believe that the company is the first automaker to commercialize L3 class autonomous heavy trucks in China. It has a first-mover advantage, and is expected to open up medium- to long-term profit margins through advanced driver-assistance services and Internet of Vehicles service charging services within the next 3-5 years.
Potential catalyst: We believe that the catalyst for the company's stock price in the next 3-6 months will come from: the liquidation of restructuring and cost reduction and efficiency will improve the company's profitability, and operating performance will exceed market expectations.
Profit forecasting and valuation
We expect the company's EPS to be 0.85/1.10/1.29 yuan and CAGR of 23.2% from 2021 to 2023, respectively. SOTP will give the traditional vehicle business a price-earnings ratio of 14 times 2021 and 11.2 times the 2025 market sales rate for the autonomous driving business, with a target price of 14.06 yuan, with a target price of 14.06 yuan, with an upward margin of 21.4%.
risks
Heavy truck sales fell short of expectations, and the development of autonomous driving technology fell short of expectations.
