Focus on opinions
Investment advice
We upgraded Yonggui Electric Appliance's rating to “outperform the industry”, with a target price of 14.3 yuan (corresponding to P/E 27x in 2023). We expect that the continuous increase in the penetration rate of new energy vehicles is expected to drive demand for new energy high voltage connectors. At the same time, the company's equity incentives demonstrate confidence in the development of the new energy business.
The reasons are as follows:
Yonggui Electric announced 1-3Q22 results: revenue of 1,047 million yuan, an increase of 36.1% over the previous year; Guimu's net profit was 118 million yuan, corresponding to a profit of 0.31 yuan per share, an increase of 30.7% over the previous year. Looking at a single quarter, the 3Q22 company's revenue was 368 million yuan, an increase of 21.9% over the previous year; Guimu's net profit was 36 million yuan, corresponding to a profit of 0.09 yuan per share, an increase of 10.9% over the previous year, in line with our expectations.
At the industry level: Demand for the rail transit industry in 2022 has yet to be fixed. Affected by the epidemic, fixed investment in China's railway industry declined year-on-year as of September this year. According to data from the National Railway Administration, the cumulative amount of 1-3Q22 railway fixed asset investment completed decreased 6.9% year-on-year to 475 billion yuan. The penetration rate of new energy vehicles continues to increase, driving an increase in demand for automotive connectors. According to the Association of Automobile Manufacturers, sales of new energy vehicles in January-September 2022 were 4,567 million units, an increase of 112% over the previous year. According to CICC's forecast, China's new energy passenger vehicle and commercial vehicle sales will reach 10.23 million units and 470,000 units respectively in 2025, and the CAGR of new energy vehicles from 2021 to 2025 will be 35%. We expect higher sales of new energy vehicles to drive demand for automotive connectors.
Company level: 1) In the rail transit field, as a leading rail transit connector company, the company's connector products entered the high-speed rail “Fuxing” supply list. At the same time, the company is exploring rail transit supporting products.
2) In the field of new energy, as an early connector company involved in new energy vehicles in China, the company has now entered the supply chain system for domestic first-tier brands and joint venture brands such as Geely, Great Wall, BYD, BAIC, SAIC, FAW, Honda, etc. In October 2022, the company announced an equity incentive plan, demonstrating confidence in the development of the new energy business.
What's the biggest difference between us and the market? The market is pessimistic about the company's rail transit business. We expect that with the easing of the epidemic, the company's rail transit business is expected to usher in recovery opportunities.
Potential catalyst: Increased demand for new energy connector business.
Profit forecasting and valuation
Considering the improvement in the new energy connector business, we raised 2022/2023 operating revenue by 8.5%/21.1% to 1,501/1,915 billion yuan, respectively, and the 2022/2023 net profit increased 8.6%/14.5% to 162/201 million yuan respectively. The company's current stock price corresponds to the 2022/2023 31/25x price-earnings ratio. Considering the good development prospects of the company's new energy business and profit increases, we raised the company's target price by 30% to 14.3 yuan, corresponding to the price-earnings ratio of 34/27 times in 2022/2023, with a potential increase of 8.7%. At the same time, we raised the rating to “outperform the industry” rating.
risks
The development of the new energy business has been blocked, and demand for the rail transit business has been affected by the epidemic.