Incident: On October 14, Fangzheng Electric issued an announcement: 1) The controlling shareholder of the company will be changed to Huzhou Smart Drive Technology, and the actual controller will be changed to the Huzhou Moganshan High-tech Zone Management Committee; 2) The company signed a project cooperation agreement with the Huzhou Moganshan High-tech Zone Management Committee to build an intelligent drive system project for 6 million new energy vehicles, divided into two phases of 3 million units each.
The equity reform progressed smoothly, and a fixed increase in new shareholders helped the company develop. The controlling shareholder of the company, Zhong Zhen Hanjiang, and its co-actor, Zhong Zhen Hanjiang, plan to transfer 25 million and 20 million shares of the company to Smart Drive Technology respectively within 3 months after the sale restriction period expires, and after the equity transfer is completed, Zhuoyue Auto plans to entrust the corresponding voting rights for the remaining 15 million shares to Smart Drive Technology. At the same time, Smart Drive Technology plans to fully subscribe to the 100 million shares issued to it by the company.
After the transaction is completed, Smart Drive Technology will directly hold 145 million shares of the company and control a total of 26.69% of the company's voting rights. The controlling shareholder of the company will change from Zhuoyue Auto to Smart Drive Technology, and the actual controller will change to the Huzhou Moganshan High-tech Zone Management Committee.
The impact of this equity reform on the company includes: 1. The controlling shareholder's shareholding ratio increased significantly, voting rights were raised to more than 25%, control over the company was further enhanced, the governance structure became clearer, and the company's decision-making efficiency was further improved; 2. After Huzhou Smart Drive Technology became the actual controller, it cooperated with the company to carry out a new production expansion plan, and market share is expected to increase at an accelerated pace.
Production capacity is expanding rapidly, and market share is expected to increase. The company signed a “cooperation agreement for the intelligent drive system project for 6 million new energy vehicles per year”. The project is carried out in two phases. The first phase invests about 3.2 billion yuan to build 15 new electric drive system production lines and 5 core component production lines. After production is put into operation, the production capacity of 3 million sets of drive motors per year will be formed, with an annual output value of about 6 billion yuan. The second phase depends on the company's production capacity requirements.
The first phase of the project was implemented in two more stages. The first phase raised 669 million yuan and put into operation in March 2023, resulting in an annual production capacity of 800,000 sets of drive motors (520,000 sets of flat wire motors+280,000 sets of circular motors); the second phase was put into operation in October 2024, forming an annual production capacity of 2.2 million sets of drive motors. After state-owned shareholders took the shares, the company's expansion plan was clear: 1. After the first phase of the expansion plan was put into operation, Lishui's production capacity of close to 200 units is expected to form a production capacity of about 5 million drive motors in 24-25, and the market share is expected to increase to more than 20%; 2. The cost advantage driven by scale effects is further reflected. Combined with the increase in the share of middle and high-end customers, gross margin is expected to remain above 15%, and profitability is expected to continue to improve.
The 2022H2 inflection point can be expected, and both revenue and performance are expected to rise. The 2022Q4 is expected to reach an inflection point: 1) Mass production of Q4, a number of mid-range and high-end models from customers such as NIO, Xiaopeng, and Great Wall, began, and the company's shipments and the proportion of middle and high-end products increased in a single quarter; 2) Raw material prices gradually stabilized, and price transmission was gradually reflected. In the long run, the company's revenue is expected to maintain high growth, and profitability improvements can be expected: 1) The product structure is high-end. According to the announcement, the company's high-power flat line motor shipments have increased, and the value of bicycles has gradually increased; 2) New customers have expanded smoothly. The company's new customers include leading new power car companies and independent brand customers such as NIO, Xiaopeng, Great Wall, and SAIC; 3) Production capacity is rapidly expanding, and the value of the automated flat line motor production line is high. After the state-owned investment takes over, it will help the company expand its production capacity, and market share is expected to accelerate.
Investment advice: We expect the company to achieve operating income of 25.5/44.7/80.4 billion yuan and net profit of 0.4/22/44 million yuan in 2022-2024. The current stock price corresponds to PE 101/20/10 times, maintaining “buy-A”
Rating, maintaining a target price of 15 yuan/share for 6 months.
Risk warning: the impact of lack of cores in the automotive industry, the risk that sales of new energy vehicles fall short of expectations, and the risk of fluctuations in raw material prices.