Investment logic
Veteran of automobile connector industry, strong profitability. The company's two major business segments are automotive connectors and consumer electronics connectors, accounting for about 75% and 25%, respectively. In 2020, the company's income was 1.2 billion yuan and the net profit was 190 million yuan. In the first half of 2021, the company's revenue was 670 million yuan, an increase of 45% over the same period last year, and its net profit was 110 million yuan, up 71% from the same period last year. The company's gross profit margin is maintained at about 35% and the net profit margin is maintained at about 15%.
The company locates high-end connectors with high safety level, high technical barriers and high gross profit margin. The company entered the automotive connector industry before 2010, positioning in high-end connectors, including gearbox components DQ380, steering system components and other key products, high safety level requirements, complex technology, high technical barriers, the company's competitive advantage is obvious, there are few domestic competitors. As early as 2010, the company has established cooperative relations with Bosch, United Microelectronics Corp and other important customers. In recent years, it has been continuously put into production line equipment, the level of automated production has improved, and competitive advantage has been strengthened. the proportion of labor costs in operating costs has dropped from 17.0% in 2017 to 11.6% in 2020, which is at an excellent level in the industry.
Short-term electrified products will be mass-produced, and high-voltage and high-speed connectors are expected to be mass-produced. The company's new energy vehicle-related products have entered the Volkswagen MEB platform, and are supplied exclusively in China, with a bicycle value of about 800yuan; it has also entered the Great Wall, Guangzhou Automobile and other electric platforms, and it is expected that the components of new energy vehicles will bring 600 million yuan in revenue in 2023. The company's investment project (adding gearboxes, connectors, power management, consumer electronics and other components) is expected to be put into production in the first half of 2022, with an estimated annual income of 910 million yuan after the project is put into production. The company's products include fisheye terminals, 5G high-frequency connectors, high-current connectors for new energy vehicles, etc., which cater to the trend of intelligent, electric and high-end manufacturing of automotive connectors, and look forward to mass production.
Investment advice and valuation
It is estimated that the return net profit of the company from 2021 to 2023 is 2.5 billion yuan, respectively, and the corresponding EPS is 0.62, 0.80 and 1.06 yuan, respectively. The company is a high-quality domestic automobile connector company, leading products are used in gearboxes and steering systems with high safety levels, and there are few domestic competitors. In the high-end field, the company is expected to win by virtue of the process barrier, and in the middle and low-end field, it is expected to win with performance-to-price ratio through automated production. It will be given a "buy" rating of 35 times PE in 2022, corresponding to the target price of 28.10 yuan per share.
Risk
The risk of the epidemic in Malaysia affecting Bosch steering system production; the risk of lower-than-expected sales of new energy vehicles and connector orders; the risk that the progress of the research project is lower than expected; the risk of shrinking business of traditional fuel vehicle connectors in the long-term dimension; the risk of lifting the ban on restricted shares