Recommended logic: 1) Compared with traditional processes, the cold forging process has significant advantages in cost and accuracy, and there is still room for improvement in bicycle usage. Demand for cold forgings in the domestic market is expected to reach 824,000 tons in 25 years, and the increase in industry demand will drive the company's revenue to increase. 2) The company has achieved the layout of the entire industry chain, has strong R&D and cost control capabilities, and has maintained a long-term gross margin of more than 50%, far surpassing its competitors. 3) The company's overseas markets continued to expand, and the share of overseas revenue increased, laying the foundation for the company's performance. In addition, the company actively lays out the direction of intelligent automotive electrification and develops related automotive components horizontally. Among them, the thermal management market is huge, with an estimated market size of 73.81 billion yuan in 25 years. The company's expansion into the new energy sector is expected to drive rapid growth in performance.
Cold forgings have a lot of room for growth in the domestic automobile market. Compared with processes such as cutting and hot forging, the cold forging process has the advantages of high production efficiency, low material loss, good component performance, and high workpiece accuracy, and is suitable for general parts and special-shaped parts. We expect the domestic use of cold forged parts for passenger cars in 23/24/25 to be 558/675/ 824,000 tons, with a CAGR of 20.5% in 23-25. Given the cost reduction and efficiency and environmental advantages of the cold forging process, it is expected that the number of cold forged bicycles used globally, especially in domestic automobile manufacturers, will continue to increase in the future, and the prospects for the automotive cold forging market are worth looking forward to.
With the layout of the entire industry chain, profitability is expected to continue to be optimized. The company covers the technology development and layout of the entire industry chain of materials, molds, equipment and products to achieve cost control and stable product output. The gross margin of 23Q1-Q3 reached 54.8%, leading the profitability of its peers. 23H1 Huzhou's new coordinates achieved revenue of 0.3 billion yuan, +103.9% over the same period last year. Currently, Huzhou's new coordinates are cooperating with the reviews of customers in various industries, gradually completing trial production and product delivery, adding to the company's active development of overseas markets. It is hoped that in the future, losses will be turned into profits to continue to optimize profitability.
Overseas markets continue to expand, concentrating on the NEV industry. 23H1 achieved overseas revenue of 90 million yuan, accounting for 32.6% of the company's operating income, +5.2 pp over the same period last year. According to the company's 2023 semi-annual report, the company has achieved remarkable results in expanding the overseas market for precision body chassis parts. The overseas commercial vehicle and passenger car markets are already gaining momentum at the same time, laying the foundation for the company's continued growth in performance. The new energy sector layout has begun to pay off revenue. 23H1 new energy vehicle products have revenue of 500 million yuan, accounting for 18.5% of the company's operating income. According to the mid-year report on the 23rd, the company built a team to continue to expand the development of precision components in the NEV industry chain, such as carbon dioxide heat pump systems, integrated thermal management modules, electric drive transmission systems, and power battery system housings. With the corresponding projects being targeted and mass-produced one after another, the new energy sector is expected to become the company's second growth curve. Recently, the company obtained a ball screw transmission structure patent. QYR predicts that the global ball screw market will reach 3.2 billion US dollars in 2029. As industry demand grows, ball screw transmission structure products are expected to open up new growth space for the company.
Profit forecasts and investment advice. We expect a compound growth rate of 23.8% in net profit over the next 3 years, giving it 17 times PE in 2024 and a target price of 28.73 yuan to maintain the “buy” rating.
Risk warning: risk of domestic sales for major customers falling short of expectations, risk of overseas factories falling short of expectations, risk of raw material price fluctuations, risk of downstream customer sales falling short of expectations, risk of exchange rate fluctuations, etc.