Leading supplier of automotive alternators, actively entering the energy storage circuit
Since its establishment in 2001, Dehong Co., Ltd. has focused on the development and production of automotive alternators. It has gone through three stages, from obtaining vehicle support qualifications, to supporting mainstream domestic commercial vehicle brands, to entering the global procurement system of famous international companies such as Cummins in the US and Navistar in the US. A vehicle alternator is a device that converts mechanical energy generated by a vehicle engine into electric energy. It is the main power source for automobiles and one of the key components of vehicle engines.
In August 2022, the company and Full Dimension Energy jointly funded the establishment of Zhejiang Zhenneng Technology Co., Ltd., of which the company pledged 12 million yuan, accounting for 60%. The joint venture built a new plant of 12,000 square meters, and will complete 3 fully automated production lines to design and produce an energy storage system of 3 GWh per year, with an estimated annual output value of 5 billion yuan. The main products include household microgrid energy storage power supplies and large-scale energy storage power plants in industry and commerce. Subsequently, in October 2022, the company invested 15 million yuan to participate in Zhejiang Quanwei Energy Technology Co., Ltd. Quanwei and its subsidiary product technologies cover portable energy storage, household energy storage, industrial and commercial energy storage, inverters, battery management systems (BMS), energy storage converters (PCS), energy management systems (EMS), etc. Currently, the main products are portable energy storage power supplies, etc. From the participation and joint venture with Full Dimension Energy, it can be seen that the company is actively entering the energy storage circuit, opening up new growth space.
Traditional business performance is under pressure for the time being, and is expected to improve in 2023
According to the company's 2022 performance forecast, in 2022, the company achieved net profit of 80-12 million yuan, a year-on-year decrease of 69.17% to 79.45%; deducted non-net profit of 24.0-6.4 million yuan, a year-on-year decrease of 79.65% to 92.37%. The company's 2022 performance was under pressure due to poor downstream demand and rising upstream raw material prices. We expect commercial vehicle production and sales to resume growth as the impact of the epidemic dissipates and the economy gradually recovers, while the company's performance is expected to improve in 2023 as the main supplier of alternators for domestic commercial vehicles.
Rapid expansion of energy storage business opens up a second growth curve
The company signed a sales framework agreement with Full Dimension. Full Dimension plans to purchase energy storage products from Zhenneng Technology for a total amount of not less than 600 million yuan, with prices added according to cost. Considering the company's revenue for the full year of 2021 was 590 million yuan, we expect this framework agreement to give the company greater flexibility and open up the company's second growth curve.
Profit forecasting
We are optimistic that the company's traditional main business is expected to recover, and the energy storage business will add performance flexibility. We predict that the company's net profit for 2022-2024 will be 0.1, 0.56, and 85 billion yuan respectively, and EPS will be 0.04, 0.22, and 0.33 yuan respectively. The current stock price corresponding to PE is 391, 71, and 47 times, respectively. It is covered for the first time, giving an “increase in holdings” investment rating.
Risk warning
The risk that production and demand for energy storage products falls short of expectations, the risk that commercial vehicle sales will recover lower than expected, the risk of a macroeconomic downturn, the risk of increased market competition, etc.