The overseas market is vast, and the domestic market is growing steadily.
In 2012, the domestic automobile valve market is about 2.3 billion yuan, of which OEM market is about 1.5 billion yuan and AM market is about 800 million yuan. The global valve market is about 15 billion yuan, of which OEM market is about 6.5 billion yuan and AM market is about 8.5 billion yuan.
In the mature market, the automobile valve AM market is generally 1.3 times that of the OEM market, and the corresponding proportion in China is only 0.5 times. There is more room for development of the domestic AM market in the future. It is estimated that by 2015, the total size of the domestic automobile valve market will be 3 billion yuan, with an annual compound growth rate of about 10%, of which the size of the AM market will increase to 1.2 billion yuan.
Domestic automobile valve leader, international business from after-sale to supporting
The top three enterprises in the domestic automobile valve industry are Mahler Sanhuan, Jinan Ward and Dengyun shares, with 2012 income of 5.5,4.8 and 300 million yuan respectively. The company's products are mainly sold to the domestic OEM market and overseas AM market, accounting for 40.5% and 54.3% respectively in 2012. Among them, the domestic sales are mainly diesel engine valves, accounting for about 70%. The main customers are Weichai Power, Chongqing Cummins, Yuchai shares, etc., and the domestic OEM diesel engine valve share is about 11%. The main destination for overseas exports is the US, accounting for more than 60 per cent and 4.8 per cent of the US AM market.
2013H1 has signed a supply agreement with Caterpillar Inc and has begun to supply its plants in Wuxi and the UK. In the future, overseas OEM customers will be a driving factor for the company's revenue growth.
Profitability needs to pick up
The company's 2013H1 gross profit margin is 33.7%, down 1.6pct from 2012. Due to the decline in price, the valve gross profit margin of the company's OEM gasoline engine has declined rapidly in the past two years, bringing some pressure to the company's gross profit margin.
The company's 2013H1 financial expense rate is 5.9%, and the asset-liability ratio is 56%, of which interest-bearing debt accounts for more than 80% of the total liabilities. After listing, the capital structure of the company will be improved to a certain extent, which will reduce the rate of financial expenses.
The new production capacity of fund-raising projects depends more on the digestion of the export market.
After the annual production of 20 million car valves in the company's fund-raising project reaches production, the total production capacity will reach 45 million units, and the capacity digestion will face certain pressure. The growth rate of domestic diesel vehicle valve market is slow, while that of gasoline vehicle valve market is relatively high, but the gross profit margin of the product is low. Opening up overseas markets is the most effective way to digest new capacity.
Profit forecast and valuation
In 2013, due to insufficient production capacity, the company took the initiative to reduce the proportion of overseas exports in order to maintain domestic OEM market share, resulting in a decline in sales and gross profit margin. With the reduction of production capacity, the company has developed important customers such as Caterpillar Inc, and its performance will pick up in 2014.
We predict that the annual EPS of the company in 2013-14-15 will be 0.38 2014PE 0.51 yuan respectively. With reference to the average valuation level of small car parts stocks and considering the current high heat of the new stock market, we will give the company 20x CPG with a corresponding share price of 10.2 yuan.