Investment point 1: Benefiting from the increase in the penetration ratio of automatic transmissions of domestic independent brands, as well as the company's own product technology maturity, stable quality, and continuous improvement in new-generation product capabilities, DSI will become the company's main source of profit contribution in the next 3 years. Assuming that Shuanglin Investments were consolidated for the full year of 2018, with a supporting financing amount of 739 million, we expect that the company's net profit to the mother in 2017-2019 will reach 430 million, 750 million, and 910 million. The corresponding PE is 24X, 18X, and 15X respectively, covered for the first time, and given a recommended rating.
Investment point 2: The Shuanglin 6AT will be the company's main source of profit for the next 3 years. The highlights are the increase in product sales and the resulting increase in profitability: 1) The product quality is stable, the technology is mature, and the DSI 6AT is equipped with Korea's Ssangyong in the early stages, and the performance is stable. The company's new products, such as M05, are developed based on existing 6AT products, and are being improved in size and quality, and will target mainstream markets such as compact models. Optimistic about its future development prospects. 2) It has a cost performance advantage. According to the announcement, the average unit price of the company's products in 2017 is around 9100, and the price of the new M05 product is expected to be around 8,700. Compared with foreign AT products and domestic CVT and DCT products, they all have a high cost performance advantage. 3) There is plenty of room for gross margin improvement: Currently, the gross margin of automatic transmissions for domestic passenger cars is around 30%, while the gross margin of Shuanglin 6AT is only 16%. As product sales increase and new customers continue to join, a scale effect will appear, driving an increase in its profitability.
Investment point 3: The company's other business performance is steady. The company's business includes automotive interior parts, seat systems, precision castings, and its main subsidiaries, New Torch, Shanghai Chengye, and Deyang Electronics. We judge that the overall performance of this segment will increase by about 20% over the next 3 years.
Risk warning: 6AT product development and promotion fell short of expectations.