New energy vehicle connectors open the second growth curve for rail transit connectors. 1) Yonggui Electric has been deeply involved in the field of rail transit connectors for many years and is the leading rail transit connector in China. The company started with rail transit connectors, successfully developed China's first railway engine cooler connector in 1979, and then gradually entered the railway bus, train, urban rail transit vehicle and other markets. Customers include CRRC, China Railway Group, and subway operating companies in cities such as Beijing, Shanghai, and Chengdu. The company's domestic rail transit connector market share remained at 25%-30% for a long time. 2) The company's new energy vehicle connector business is growing rapidly, and the customer structure is high quality. 2022H1's automotive and energy information business achieved revenue of 299 million yuan in 202H1, +103.6% year on year, and gross margin increased to 20% from 17% in 2019.
The company's customer strategy has been optimized. Currently, it focuses on customers of leading car companies such as BYD, Geely, and SAIC Motor to guarantee revenue quality.
The company has a first-mover advantage in the field of liquid-cooled overchargers, which is the next impressive growth point. 1) High-pressure fast charging is a high-certainty energy replenishment technology route, and the market space for liquid-cooled overchargers is expected to grow rapidly.
Car companies and charging facility operators are actively deploying high-power fast charging. Since the release of the Tesla V3 supercharger in 2019, many own-brand car companies such as Aian and Ideal, as well as charging facility operators such as Telaidian, Star Charging, and ABB Linpile, have launched construction plans for liquid-cooled supercharging piles/stations. Based on the plans of various brands, 2023-2025 will enter a stage of rapid rise in the number of liquid-cooled overchargers. The market space for liquid-cooled overchargers is expected to be 1.78 billion yuan, with a CAGR of about 165.8% in 3 years; 2) Yonggui Electric has taken the lead in mass production and supply of liquid-cooled overchargers, and the first-mover advantage is obvious. Yonggui Electric became one of the first domestic electric vehicle charging interface manufacturers to receive a strong inspection report in May 2016. It mastered the core technology of high-power liquid-cooled charger guns and was the first to promote its application in the domestic market. Currently, it provides batch products to many well-known customers, which has formed a first-mover advantage in the domestic market.
The overhaul of China's stock of rail transit vehicles has brought demand for replacement parts, and the expansion of subway networks in second- and third-tier cities has provided additional volume. 1) China has a large stock of rail transit vehicles and is gradually reaching the overhaul period. The overhaul period for EMUs and subways in China is 12/10, respectively, and the construction of EMUs and subways in China all began to accelerate dramatically around 2013, which means that more and more rail transit vehicles will reach the overhaul period starting in 2023, which will bring a large number of old parts replacement demand; 2) The expansion of subway network lines in second- and third-tier cities will bring incremental demand for new rail vehicle components. Comparing the long-term plans of rail transit networks in various provinces and cities and the subway mileage that have been built so far, we can find that many second- and third-tier urban rail transit networks still have great potential for construction during the “14th Five-Year Plan” period. Recently, new lines have been opened and operated in many places such as Nantong, Wuhan, and Chengdu. With the gradual enrichment and improvement of rail transit network lines in various cities, demand for new rail transit vehicle products is expected to be further released.
Investment advice: We expect the company to achieve revenue of 1.49 billion yuan, 2.04 billion yuan and 2.58 billion yuan in 2022, 2023 and 2024, and the corresponding net profit of 160 million yuan, 209 million yuan and 253 million yuan. Based on today's closing price, PE is 34 times, 26 times, and 22 times, maintaining the “buy” rating.
Risk warning: The growth of the NEV and charging stations market fell short of expectations; customer expansion fell short of expectations; rail transit industry growth fell short of expectations. Market competition intensifies, and there is a risk that gross margin will decline.