Independent electronic control companies are deeply involved in the EMS field, and their core technical advantages may drive domestic replacement.
The company is deeply involved in the EMS field, providing three series of products: EMS, pure electric electronic control systems, and hybrid electronic control systems, and in-depth layout of T-BOX to promote intelligent development. The company is committed to breaking the “hollowing out of core technology” situation in the Chinese automobile industry, successfully developed an engine management system with independent intellectual property rights, and has already begun to replace imports in some markets, so the potential for domestic substitution is promising. In the first three quarters of 2023, the company achieved operating income of 699 million yuan, an increase of 31.88% over the previous year, and realized net profit of 42 million yuan, an increase of -21.72% over the previous year. We believe that under the trend of chip expansion and price decline, the company's continued deep cultivation in the EMS field to build technical barriers is expected to achieve a steady recovery in performance.
In the first year of the rise of the new hybrid power, it is expected that the combination of high-quality customers will achieve a 0-1 breakthrough in passenger cars.
2023 is a critical year for the company to begin implementing a large number of GDI passenger vehicle electronic control systems, hybrid passenger vehicle electronic control systems, and electric vehicle GCU and MCU. Currently, the company's revenue is concentrated in the commercial vehicle market, and future growth will mainly come from the passenger car market. Under the new energy wave, the company actively laid out the hybrid market, achieved mass production and shipment with ideal new energy vehicle cooperation projects, and extended range MCU products received frequent development notices. Hybrid Dongfeng has increased the development of electronic control systems. The development trend of downstream vehicles is good, and the size of the electronic control market has maintained a high growth rate, which is expected to drive the growth of core electronic control components such as VCU and MCU and expand the growth space. The company's electrification transformation process is progressing in an orderly manner. It is expected that in the future, it will achieve a breakthrough of 0-1 for passenger cars and become a new growth point for the company.
Russia's gas supply to China continues to rise, and the oil and gas price gap widens, and CNG products may be released rapidly.
The benefits of gas supply from Russian pipelines are spreading frequently, and gas transmission volume of the “Siberian Power” pipeline is growing rapidly.
The three lines of the China-Russia gas pipeline are arranged in an orderly manner, and the import potential may double. The accelerated expansion and layout of domestic natural gas filling stations is expected to benefit from sufficient gas supply terminals to achieve rapid growth. The difference between gas prices and oil prices has widened further, and natural gas has shown an overall favorable situation. In a situation where natural gas supply is improving and gas prices are falling, Ryoden Electric Control continues to be deeply involved in the CNG market. It is expected that it will benefit from the CNG dual-use fuel EMS core technology and achieve a sharp increase in the volume and price of CNG light trucks.
Investment suggestions: We predict that the company will achieve operating income of 9.82, 15.04 and 1,969 billion yuan in 2023-2025, corresponding growth rates of 37.91%, 53.17%, and 30.94% respectively; net profit of 0.70, 200, and 268 million yuan respectively, corresponding growth rates of 5.13%, 183.96%, and 33.81%, respectively. The company was given a 40X valuation for 2024, corresponding to a target price of 154.4 yuan/share and a corresponding market value of 8 billion yuan, covering the “buy” rating for the first time.
Risk warning: risk of loss of core technical personnel; risk of high customer concentration; risk of core technology leakage; risk of loss of core components such as chips, fuel injectors, oxygen sensors, etc.; risk of product development falling short of expectations, etc.