occurrences
On January 23, 2024, Tongling Co., Ltd. announced that it plans to increase its capital to Jiangsu Jiangzhou Auto Parts Co., Ltd. by 80 million yuan. After the capital increase is completed, the company will hold 51% of Jiangzhou Auto Parts's shares, and Jiangzhou Auto Parts will become the company's holding subsidiary. In addition, the company plans to use the capital raised to invest 88 million yuan to build 6.5 million sets of NEV components a year, such as roofs, fenders, and wiring harnesses.
Qualified supplier for leading car companies, performance promises to effectively reduce risk Jiangzhou Auto Parts is mainly engaged in the production and sale of automotive interior and exterior parts. The full year of 2022/2023H1 achieved revenue of 180/100 million yuan, net profit of 2333.78/93534 million yuan, and net assets of 3875.93/481127 million yuan respectively. It has now officially become a qualified supplier for leading car companies such as BYD.
According to the performance promise in the announcement, Jiangzhou Automobile's net profit for 24-26 is not less than 0.3/0.4/50 billion yuan. If the cumulative or single annual performance achievement rate during the commitment period is less than 70%, Tongling Co., Ltd. has the right to request the original shareholders to repurchase 51% of Jiangzhou Auto Parts shares.
Automobile interior and exterior space is vast, and it is expected to have a synergy effect with the main business. According to the announcement, the company plans to use the raised capital to invest 88 million yuan in the annual construction project for 6.5 million NEV headings, fenders, wiring harnesses, etc. The shortfall will be covered by its own capital or self-financing, with a total project investment of 100 million yuan. The planned construction period for the project is 3 years, and the estimated annual revenue after delivery is 293 million yuan, and the IRR is 14.29%. This acquisition and expansion of production is expected to spread risks and enhance the overall competitiveness and stability of the company's operations, which will help the company's long-term development. One of the main production processes for automotive interior and exterior parts is the injection molding process, which is compatible with the company's existing production equipment and technology, and is expected to achieve collaborative development to a certain extent. At the industry level, automotive interior and exterior is one of the largest market segments in the auto parts field. There are many products involved. The industry accounts for 1/4 of the total size of auto parts, and the market space is vast. Furthermore, with the development of new energy vehicles, research on key core components and the continuous strengthening of the trend of localization substitution, the auto parts market is expected to further improve.
Investment advice
The company is expected to achieve revenue of 1,798/28.16/37.74 billion yuan in 23-25, net profit to mother of 2.09/3.46/471 million yuan, and corresponding PE of 26x/16x/11x. The company is a leading junction box company. New product iterations and capacity expansion are expected to increase its market share, and the volume of the connected wiring harness and automotive interior business is expected to provide the company with new increases and maintain a “recommended” rating.
Risk warning
Fluctuating raw material prices, fluctuating downstream industry sentiment, trade policy changes, new capacity expansion is not as fast as expected, etc.