This report is read as follows:
Volkswagen and XPeng Inc. have reached a cooperation agreement to launch new electric models for the Chinese market in 2026. Lijin Technology, as a supplier of XPeng Inc. super-large die casting machines, may continue to benefit.
Investment advice: we believe that the long-term growth logic of Lijin Technology ("the Company") is solid, and its short-term performance is expected to continue to improve. It is rated as "overweight" with a target price of HK $12.43. We expect earnings per share for the 2024-2026 fiscal year to be HK $0.620, HK $0.803 and HK $1.007 respectively. Our target price corresponds to a price-to-earnings ratio of 20.0x / 15.5x / 12.3x for fiscal year 2024-2026.
On July 26, Volkswagen announced a cooperation agreement with XPeng Inc. to jointly develop two electric models. Volkswagen announced that it will invest about $700 million in XPeng Inc. and plans to work with XPeng Inc. to develop two new electric models, which will be launched to the Chinese market in 2026. The cooperation between Volkswagen and XPeng Inc. will bring win-win results. We are more concerned that the cooperation between the two sides may stimulate the continuous improvement of the penetration of integrated die-casting solutions in the Chinese market.
XPeng Inc. is the forerunner in the active application of integrated die-casting scheme among many automobile manufacturers in China. At present, the G6 model released by XPeng Inc. actively adopts the integrated die-casting scheme. The front cabin and rear bottom plate of the G6 model are made of 7000 tons of Lijin technology super-large die-casting machine, and the battery package is made of 12000-ton super-large die-casting machine. At present, the G6 model is actively recognized by consumers. We believe that XPeng Inc. may continue to increase the application of integrated die-casting solutions in his cooperation with Volkswagen.
The cooperation between Volkswagen and XPeng Inc. will effectively stimulate the penetration of integrated die-casting solutions in the Chinese market, and Lijin technology will continue to benefit. At present, in addition to Tesla, Inc., the manufacturers who actively apply the integrated die-casting scheme are generally small, and the delivery volume of related mass production models is generally low, which seems to show that the application of the integrated die-casting scheme has encountered a bottleneck. However, we always believe that the application of integrated die-casting scheme is the general trend. At present, traditional car companies are gradually changing their wait-and-see attitude and actively join the integrated die-casting scheme. In addition to Volkswagen, Toyota Motor Corp announced in June that an electric vehicle with an integrated die-casting scheme would be launched in 2025. We believe that the cooperation between XPeng Inc. and Volkswagen will promote the development of China's automobile industry chain, and Lijin Technology, as a supplier of super-large die-casting machines in XPeng Inc. factory, will be the first to benefit.
Risk hint: the permeability of the integrated die casting scheme may be lower than expected, and the market competition may be intensified.