Incidents:
The company expects to achieve net profit of 213 million yuan to the mother in 2019, an increase of about 140.85% over the previous year.
Commentary:
Higher performance, higher sales, improved product structure
According to forecast estimates, the net profit of 2019Q4 was 62.7866 million yuan, an increase of 536%/33% over the previous year/month. It achieved rapid growth throughout the year. On the one hand, the company's market development was smooth, sales increased, and the company's product structure improved, and the average price of the product increased; on the other hand, during the same period, the base was low due to declining revenue and the termination of equity incentives to accelerate share payments (management expenses increased 74.53% year-on-year). Furthermore, the devaluation of the RMB against the US dollar last year increased exchange earnings, which also had a positive effect on the sharp increase in performance.
The number of cars owned in the world is huge, and the company has broad prospects for growth
Since the company's sales volume basically comes from the after-sales market, the stock logic for the company's growth is strong. The number of new cars owned in the world is expected to be around 14-1.5 billion, and the number of new domestic cars owned is 260 million. Therefore, with the support of huge car ownership, automobile brake pads and brake discs, which are consumables, will have considerable and stable market demand. According to estimates of automobile production and ownership data, the global automobile brake pad+brake disc market has exceeded 100 billion dollars. The company's revenue is distributed over a wide range of markets, with more than 85% coming from overseas markets. Overall, more than 50% comes from the European market and about 15% comes from the North American market. The number of cars owned in Europe and North America is expected to exceed 400 million vehicles. Coupled with the Chinese market, they will form the foundation and support for the company's continued growth in the future. Relying on the cost performance advantage of products, the company is expected to gradually replace imports of high-end products and “go global”, thereby achieving a continuous increase in market share.
Product structure improvement, automobile OEM and high-speed rail innovation machine
1) The company's brake pad products are divided into the Entry/Good/Better/Best series from general to high-end. Currently, the products are mainly in the middle and high-end series. Product prices are rising, and the product structure is improving. As the company optimizes product structure and technical structure, optimizes customer resources, and improves operational efficiency, it is expected that the product structure will continue to improve in the future, and profitability will continue to improve. 2) Compared with the AM market, the automotive OEM market has stricter product technology and quality requirements, more difficult market development, and relatively higher profit margins. For a long time, the domestic and foreign automobile brake pads and brake disc OEM markets were mainly dominated by international/joint ventures. As a leader in the domestic automotive brake pad field, the company has successfully obtained supporting supply qualifications from some OEMs through continuous R&D and innovation. In particular, the company passed Daimler's PFA review last year and officially supplied supporting products in batches for Mercedes-Benz models. This not only reflects the quality level of the company's products, but also provides important demonstrations and guarantees for the company to continue to conquer the OEM market in the future. Although the company currently accounts for a low share of OEM placements, the growth momentum is clearly better than the overall trend. In the future, as customers continue to develop and the scale effect of OEM support becomes apparent, profitability is expected to improve or even surpass the AM market. 3) Actively promote a concerted diversification strategy. For example, the company is actively developing engine brake pads and plans to enter the railway and other rail transit markets. The company has developed three EMU powder metallurgy gate products and obtained CRCC certification from the China Railway Inspection and Certification Center. As subsequent samples are detected and road tests continue to advance, the company is expected to help increase the localization rate of China's high-speed rail train braking systems in the future and will benefit from the rapid development trend of domestic high-speed rail. We believe that the high-speed rail brake pad business will open the ceiling of the company's existing business and market, and is expected to become a new growth point for the company's medium- to long-term development.
Profit forecasting and maintaining the “increase in holdings” rating
We expect the company's EPS in 2019-21 to be 1.04/1.21/1.42 yuan/share, corresponding to the 2020/21 PE of 17/14 times, respectively, to maintain the “increase in holdings” rating.
Risk warning: the growth of brake pads and brake discs is lower than expected; raw material price risk; exchange rate risk