Event
The company released its annual report in 2018 and quarterly report in 2019: 2018 annual revenue of 2.7 billion yuan (year-on-year), net profit of 164 million yuan (+ 204%); revenue of 465 million yuan (- 25%) in the first quarter of 2019, and net profit of 28.71 million yuan (- 22%) in the first quarter of 2019.
Comment
Manufacturing business: steel wheel gross profit margin is stable, EPS environmental protection high-end equipment is growing rapidly. Steel wheel manufacturing is currently the company's core business (accounting for 51.43% of revenue in 2018), and the demand is basically in step with the car cycle. The downturn in automobile prosperity in 2018 led to a decline in steel wheel business sales (2018 annual revenue of 1.39 billion yuan, year-on-year-1.17%), or dragged down the overall financial data in the first quarter of 2019; but the gross profit margin of steel wheels remained more than 20% in 2018, reflecting the company's core competitive advantage in this field. Auto consumption is expected to be boosted by the stimulus policy in 2019, and the steel wheel business is likely to recover in the second half of 2019; at the same time, the company's "Avatar project" will technically reduce the weight of steel wheels and is expected to replace aluminum wheels in the future to achieve a simultaneous increase in volume and price in the process of mass production. The market capacity of EPS high-end environmental protection equipment is nearly 10 billion. In 2014, the company obtained the exclusive right to use EPS technology of TMW Company of the United States in China. This technology has been listed in the national "13th five-year Plan"Strategic emerging Industry key products and Services guidance Catalog", and has been selected as "National key Environmental Protection practical Technology Catalog" by China Environmental Protection Industry Association. Equipment customers cover a wide range of customers, including auto parts enterprises, special steel enterprises, steel processing centers, etc.; the annual revenue in 2018 exceeded 150 million yuan (+ 44.48% compared with the same period last year), and the gross profit margin is as high as 47.91% when technology is scarce. It is expected to maintain rapid growth in the next 1-2 years.
The new retail business in the automotive aftermarket: the digital forerunner of the "Xinkangzhong + Auto Superman" industry. Since 2013, the company has been ploughing the automotive aftermarket and created the Auto Superman project. In August 2018, the company strategically reorganized its Automobile Superman supply chain business with BABA, Tmall Automobile and Kangzhong Auto parts related business to establish Xin Kang Zhong, with BABA as the largest shareholder and Jinguo as the second largest shareholder. The upgrading of the new automobile retail model: Xinkangzhong becomes the infrastructure builder of the industry by providing online traffic and supply chain warehouse capacity, while Auto Superman empowers offline auto repair stores by means of digital information. After Xinkangzhong joined, the whole ecosystem has the exclusive operation rights of Tmall and Taobao aftermarket business (except automotive supplies), sharing the massive car owner data of Tmall automobile aftermarket retail platform, and building competition barriers. The annual revenue of the automotive aftermarket in 2018 is 956 million yuan (- 13.56% compared with the same period last year). We believe that the main reason is that the automotive aftermarket business is in the process of transformation and upgrading, and with the continuous expansion of auto Superman stores, the new auto retail model will give this sector more flexibility.
Investment suggestion
The company's traditional manufacturing repair is imminent, and the upgrading of the market service model after the new business triggers elasticity. Profit forecast: due to the impact of the cycle of the automotive industry and the running-in period of the new retail business, the company's short-term performance fluctuated slightly in the first and second quarters, and it is expected to meet the inflection point in the second half of the year. It is estimated that the company's parent net profit from 2019 to 2021 will be 3.04x10 million yuan respectively, and the EPS will be 0.30pm 0.44pm, corresponding to PE 33-22-18 times. We believe that the company has the leading characteristics in the automotive aftermarket service field in the future, while EPS environmental protection high-end equipment is growing rapidly. According to the segment valuation method, the company aims to have a market capitalization of 15 billion yuan (2.4 billion yuan for steel wheel manufacturing / 4 billion yuan for environmental protection equipment / 8.6 billion yuan for new automobile retail) and to maintain a "buy" rating with a target price of 14.83 yuan.
Risk hints: raw material price fluctuation risk; automobile market downside risk; automobile aftermarket competition risk.