Main points of investment:
Rui Ming Technology is the number one company in the market share of intelligent video surveillance systems for commercial vehicles in the world. The "intelligent video surveillance alarm system" required by regulators is a video surveillance system with DSM (driver condition Monitoring) and some ADAS (Advanced driver Assistance) functions. According to the annual statistics before the global special environment, Ruiming has a market share of 12% in the global market for intelligent video surveillance systems for commercial vehicles, and Haekangwei ranks third with a market share of 9.8%.
According to the 2019-2020 annual report and the 2021 semi-annual report, it is expected that the downturn in 2020-2021 is mainly due to the slowdown in income, the decline in gross profit margin and the increase in the rate of R & D expenditure. (1) income slowdown: during the domestic special environment, the government budget has been reduced, and many projects have been postponed, which is expected to mainly affect the market income of dregs cars and taxis; the appreciation of RMB has led to a low apparent growth rate of overseas income denominated in RMB. (2) the decline of gross profit margin: it is speculated that the increase in raw material prices, the appreciation of RMB and the depreciation of factory relocation in the running-in period will lead to an increase in manufacturing costs. (3) the rate of R & D expenditure is rising: according to the public information, we think that to build a three-tier R & D system, because there is a dual-track parallel situation in R & D at present, there is a certain consumption on R & D.
It is expected that the above triple negative factors will be gradually reversed and eliminated since 21Q4. (1) income: double drive of domestic heavy truck and overseas freight. Although the compulsory installation of two passengers and one dangerous bus has been completed by the end of 2020, the compulsory installation of heavy trucks has been carried out in various provinces across the country since the "New Road" issued by the Ministry of Transport in November 2020. Guangdong has completed the installation of all 300000 heavy trucks in August 2021, and it is expected that seven provinces of Jiangsu, Shandong, Fujian, Henan, Hebei, Shanxi and Heilongjiang will land next year. The installed capacity is about 150-2 million vehicles. The number of heavy trucks with more than 12 tons in the country is about 7 million. According to the unit price of 1600 yuan, the market size is 11.2 billion yuan. Previously, the market size of various types of commercial vehicles made by Ruiming totaled about 10 billion, that is, the potential market for heavy trucks doubled the size of the track market. (2) Gross profit margin: the appreciation of RMB, the rebound of overseas gross profit margin and the rising price of raw materials will end in the second half of next year. The Federal Reserve announced that the Taper+ is expected to raise interest rates in the middle of next year and the dollar will appreciate; the wafer shortage is expected to ease in the second half of 2022. (3) expense rate: the R & D expenditure will be the same next year, and the R & D efficiency of the three-tier R & D system will be increased by 20-30%.
Overseas and domestic market companies have different competitiveness. (1) overseas obtains the cost advantage by virtue of "supply chain advantage + labor cost advantage + engineer dividend". Compared with March's BOM, the cost is 20-30% lower than overseas. (2) domestic: the fragmented, multi-category and small-batch market characteristics of commercial vehicle intelligent video surveillance system is a kind of protection for Ruiming to compete with giants like Haikang. The market characteristics test the flexible delivery ability of manufacturers very much, while the giants often adapt to the production and manufacturing mode of large quantities and few categories, have strong R & D capabilities in standardized projects, and the return on small investment in the niche market is not high. Flexible delivery capability has become the core competence for Ruiming to win in the competition with other domestic peer companies.
Valuation: the target is reasonably valued at 13.1 billion, with a "buy" rating. We expect peak income of 4.3 billion yuan (steady-state income) and net profit of 560 million yuan in 2024. If it is valued according to the performance next year and the year after next, if it refers to the comparable company, it will give 2022max 2023 47max PE, corresponding to 13.1 billion. It is estimated that the corresponding PE of 2021 and 2022 in 2023 will be 45 / 25 / 16 respectively.
Risk tips: heavy truck compulsory installation policy to promote slow risk; exchange rate fluctuation risk; raw material price fluctuation risk.
