Article / flower bug

I made an analysis of the automobile industry from a big point of view before. Although I am pessimistic about the industry, I am still optimistic about individual segments in the future. I believe everyone holds the same view.

When it comes to new opportunities, most people will first think of new energy and self-driving, but what I'm going to talk about today is headlights, the underlying Xingyu shares.

First, Xingyu, a low-key local headlight faucet

People's impression of headlights is generally low-tech, unprofitable and fragmented, so the industry gets low attention and is considered not a good business, but Xingyu, which specializes in headlights, will surprise you.

Xingyu mainly sells automobile headlights (high price and high gross margin products), rear combination lights, fog lights and other small lights (low price and low gross margin products), accounting for more than 90% of the revenue.

The following picture shows Xingyu's revenue and net profit data over the years, which has been growing rapidly intuitively.

And compared with the whole industry and downstream vehicles, Xingyu has maintained good growth, especially after the car sales entered a low growth in 2017, the company has not been affected and its development is unique. Since 2011, Xingyu's performance growth has been around 25% all the year round, while the auto industry has stagnated in 18 years.

In the case of stagnant industry, since Xingyu still has better-than-expected performance, will the future be able to cross the cycle and become a structural opportunity? First of all, from the analysis of the development trend and competition pattern of the headlight industry, I am optimistic about Xingyu.

Second, core logic: headlight LED化+Open up customers

1) Price rise-headlamps from halogen /Xenon to LEDConversion

Different from the public understanding, headlights are in fact relatively easy to have opportunities in the auto parts sub-industry, because its technology upgrade route is clear, the change path is halogen → xenon → LED → laser, and each change product unit price is greatly increased, thus driving the enterprise profitability to improve. On the contrary, the traditional three pieces have not made any technological progress in recent years.

Since 2016, the industry began to quickly switch from halogen / xenon headlights to LED. According to Autohome Inc, the LED penetration rate of the domestic headlamp industry rose from 1.7% in 2012 to 26% in 2018, with an average annual climb of 4.1pct, and the replacement space is still huge.

From the demand side, LED headlights have higher safety, aesthetics, and continue to be favored by consumers. On the supply side, due to the reduction in cost and the doubling of value (high gross margin), manufacturers are also fully motivated to promote.

The promotion of both supply and demand brings opportunities to the local headlight industry, especially Xingyu.

Take Volkswagen as an example, Bora, which appeared on the market at the beginning of the year, is almost standard with LED, which makes the LED headlights dive to 100000 yuan of low-level models. At present, there is a lot of pressure to reduce the cost of cars, and more and more car companies tend to adopt more cost-effective local products. For example, Bora is matched by Xingyu.

Analysis of Xingyu 2018Year, 19Q1The reason why the performance exceeded expectations, LEDTransformation is the main driving force.The company's revenue in 2018 was 5.07 billion, compared with the same period last year, with revenue of 1.42 billion from the same period last year and 21% from the same period last year. 18Q3 began to provide LED headlights to Bora, Tange and Q5 of FAW-Volkswagen. According to the sales of 11.4. 8 / 66000 units after upgrading LED lights, the "price rise" led to a 410 million increase in revenue and contributed to an 8% increase in revenue. Similarly, the increase in the value of four 19Q1 LED models led to a 230 million increase in revenue, contributing to a 19% increase in revenue.

Although the historical performance is growing, the gross profit margin is declining in 2009-16, which has something to do with customer development. In the early days of cutting into the supply chain of car companies, car lamp companies started with low-cost small lamp orders (now focusing on recruiting passengers). 2017-2019Q1 gross profit margin bottomed out and rebounded, on the one hand, headlights, rear combination lights and other headlamp products accounted for an increase, followed by high prices and high gross margin LED penetration. The company's LED headlight is 18Q3 just began to support customers.

2018Q4 single-quarter gross profit margin is 25.8%, year-on-year + 5.3 pctMagne2019Q1 gross profit margin is 23.3%, year-on-year + 2.2pct, which more clearly reflects the promotion of profitability by LED projects.

After the car sales growth of downstream customers slows down, the product LEDChemical to Xingyu profit improvement, through the supporting role of the cycle has been quite obvious.Looking to the future, continuous LED projects can ensure the company's short-term 2-3 performance growth. According to the known information, there are 9 projects (3 in 18 years) produced by Xingyu LED in 2019, which are basically the volume models of various car companies, and it is conservatively estimated that the revenue increase is 900 million, the growth rate is the same as that of 18 years.

2) customer expansion is a medium-and long-term focus

Apart from the "price rise", Xingyu's long-term prospects are certainly inseparable from volume growth, which involves the competitive landscape.

The domestic headlight market presents a "one-super, multi-strong" pattern of Huayu Vision (originally a Sino-Japanese joint venture, now Huayu Automobile holding).

Data: "Application status and Development trend of Automotive Lighting in China"

The relationship between auto parts and auto companies is business binding, and headlights are no exception. For example, Huayu Vision is SAIC, and its customers are concentrated in SAIC-Volkswagen and SAIC-GM; Guangzhou Steinlei is a joint venture between Guangzhou Automotive and Steinlei, and Honda is a shareholder of Steinlei, so customers are concentrated in Guangben and Dongben; Hella is equipped with car lights for Volkswagen, so Changchun Haila's customers are mainly FAW-Volkswagen.

Data: annual reports of companies

We know that once the parts and components enterprises enter the supply chain of automobile companies, the cooperation between the two sides will usually only become more and more stable, but like the example of FAW-Dazhong Bora, there is a lot of pressure on auto companies to reduce costs.The ratio of performance to price has become an important advantage for local enterprises such as Xingyu to expand high-quality joint venture customers.. According to the annual report, Xingyu started from Chery and other independent brands, and finally equipped with "FAW-Volkswagen A-Class cars", and then to the current "FAW-Volkswagen B & VW C-Class cars", Japanese Toyota, and luxury brand Audi.

From the perspective of sales volume, the supporting Japanese system will support the company's medium-term growth. In 2018, FAW-Volkswagen sold 1.4 million units, with Xingyu matching accounting for about 40%, and corresponding revenue of about 2 billion, while Japanese sales of Toyota, Honda and Nissan totaled about 3.7 million, which is 2.6 times that of FAW-Volkswagen, and currently accounts for 10%. If the future penetration rate can reach 40%, it means that revenue will double. In the second half of 2019, Xingyu began to support Guangfeng Leiling, Guangfeng Zhixuan and Nissan Global Xuanyi (selling 50-60, 000 vehicles a month).

Data: annual report, survey data

As the "horse" of automobile enterprises, car lamp enterprises must be in front of the saddle and behind the horse in cooperation and development. the lower cooperative posture and faster response speed of local enterprises are also the reasons to obtain customers. The lamp is an important exterior part of the car, which plays the finishing touch. the shape of the lamp will often be changed when the model is changed in the middle of the model, resulting in the update frequency much higher than the standard parts. in order to save R & D and communication costs, tend to respond more quickly to local suppliers.

Financial analysis: good profitability and sound operation

Xingyu's gross profit margin has been around 25% over the past decade, even compared with the global giants, while downstream Toyota and Volkswagen generally have a gross profit margin of 18%. On the contrary, headlights are a relatively good industry.

Xingyu has a strong ability to control Sanfei, which is close to the leading series in Japan.

ROE is also on a par with the giants, even rising significantly to 14.6% in 2018.

In addition, Xingyu's business strategy is relatively steady, low leverage actually leads to lower paper profitability. Compared with its peers, Xingyu's net interest rate is significantly higher, but the company's short-term financial balance reached 2.28 billion at the end of 2018. At present, the company's production capacity is mainly concentrated in Changzhou, with an annual production capacity of 2.3 million sets of headlights and 3.5 million sets of rear combination lights. at the same time, it is actively expanding production capacity, such as Foshan Xingyu Phase II and Changchun Xingyu Intelligent Manufacturing Industrial Park. it is expected that the production capacity of these projects will double after reaching production, and it is optimistic that the return on investment will increase in the future.

The above data show that Xingyu's profitability, cost control is not inferior to the international giants, the lower leverage ratio and even lower the return on book investment, the company is a sound operating enterprise.

Specific to the recent performance, 2019Q1 revenue 1.42 billion, year-on-year + 21%, net profit 170 million, year-on-year + 30%, has been higher than revenue growth since 2017. The operating cash flow is 157 million, + 77% compared with the same period last year, and the profit quality is good. Capital expenditure is 200 million, and production capacity expansion is steady.

From the perspective of the details of working capital, the turnover of accounts payable has been higher than that of receivables for a long time, and has improved slightly recently, reflecting the company's ability to seize funds from upstream suppliers.

Summary

At this stage, good and steady business quality, coupled with the profitability and cost control ability not inferior to the international automotive light giants, and the important advantages of high performance-to-price ratio and rapid response in customer expansion, Xingyu should have a good opportunity to lend the current industry to LED headlight fast switching opportunity, through the cycle car downcycle, continue to achieve rapid growth.

According to previous estimates, LED will contribute 15% of annual revenue growth and drive gross profit growth in the next 2-3 years, while 40% Japanese penetration means creating a new star. For Xingyu, the growth path is actually very clear. Based on these, I am optimistic that the company's revenue will grow at a compound growth rate of more than 20 per cent in 2019-2021 and its performance will grow by more than 25-30 per cent. The only drawback is that the current price-to-earnings ratio of 30 times, the price is not cheap. But on the whole, as a good company on a good track, it is worthy of continuous attention, and I believe that this difference in the short term will not have much impact on long-term earnings.