First coverage
Investment highlight
Covering Hexing shares (605005) for the first time, the industry was rated as outperforming, with a target price of 36.70 yuan, corresponding to 46 times Phand E in 2022. The reasons are as follows:
Deep ploughing connector track, products across automotive electronics and consumer electronics two major application scenarios. The company focuses on the production and manufacture of connector products, and develops integrated products based on connector technology. At present, it has successfully expanded the modular components such as gearbox management system and steering system, and the product value has increased significantly compared with traditional connectors. In 2020, the revenue of the company's automotive electronics business and consumer electronics business was 840 million yuan / 270 million yuan respectively, accounting for 69.6% and 22.4% of the total revenue.
The product has the strong customization attribute, deeply binds the international giant, and has many barriers in mold development, automatic transformation of production line and so on. The company's automotive electronic products are customized products, and into Bosch, Bogwarner, United Electronics and other international head automotive electronics company supply system. We believe that the company relies on customized product attributes to establish competitive advantages in many aspects: 1) strong mold specificity, the company has the industry-leading mold development level, can achieve large-scale and multi-variety supply.
2) the automatic transformation ability of the production line is strong. In recent years, the gearbox management system and steering system components with rapid growth in scale need special production line equipment, and the per capita output value from 2017 to 2020 is increasing year by year. 3) with the further deepening of cooperation with downstream customers, due to the deepening of product complexity and customization, downstream customers tend to choose long-term partners, and the company's first-mover advantage is more obvious.
The accumulation of high-pressure technology is profound, and new energy products are driving into the fast lane. Different from traditional fuel vehicles, new energy vehicles use high-voltage working platform, and the demand for high-value high-voltage connectors is increasing rapidly. According to our estimates, the domestic market for automotive connectors in 2021 Compact will be 39.5 billion yuan and 83 billion yuan respectively in 2025, and the CAGR will reach 20.4%. We believe that the company has a deep reserve of high voltage technology, and its electric drive system products have entered the supply chain of Volkswagen's MEB platform and supplied in bulk new energy models such as Great Wall and Chang'an. At the same time, the company also has a new energy high current connector research project, which is expected to obtain more fixed points in the high voltage field and achieve a new growth curve in the future.
What is the biggest difference between us and the market? The market is worried that the company as a secondary supplier customer expansion motivation is insufficient, we believe that entering the international mainstream first-level supplier system forms an endorsement for medium-and long-term customer expansion.
Potential catalyst: the automotive industry is expected to increase inventory, and the monthly sales penetration of new energy vehicles is significantly higher than at the beginning of the year. We are optimistic about the acceleration of the company's traditional connectors and system components, as well as the further expansion of new energy products.
Profit forecast and valuation
We estimate that the EPS of the company from 2021 to 2023 is 0.55,0.80,1.04 yuan respectively, and the CAGR is 37.7%. The current stock price corresponds to 34.0 x 2022eP/E, and we cover it for the first time. We rate the outperforming industry with a target price of 36.70 yuan, corresponding to 46x2022eP/E, which has 35.3% upward space compared with the current stock price.
Risk
The competition in the industry intensifies, the customer concentration is high, the price of raw materials rises higher than expected, and the proportion of family shares is high.