Tongling Co., Ltd. announced changes in some capital raising investment projects: it plans to change the “PV Junction Box Technical Improvement and Expansion Project” to “Jiangsu Jiangzhou Auto Parts Co., Ltd. 51% equity increase project” and a “construction project with an annual output of 6.5 million sets of NEV headings, fenders, wiring harnesses, etc.”; issued a capital increase acquisition announcement: it plans to increase the capital of 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; release the 2023 annual results forecast: 2023 is expected to achieve a net profit of 1.90 ~ 215 million yuan, up 64.21% to 85.81% year on year; it is estimated that non-net profit deducted from mother will be 173 to 198 million yuan, an increase of 77.52% to 103.18% year on year.
Key points of investment
Scale up+cost reduction and efficiency, steady growth in performance
In 2023, the company expects to achieve net profit of 190 to 215 million yuan, an increase of 64.21% to 85.81% over the previous year; it is expected to achieve net profit deducted from mother of 173 to 198 million yuan, an increase of 77.52% to 103.18% over the previous year. The pre-increase in performance is mainly due to: 1) the company continues to expand sales channels, consolidate sales prices, improve product performance and layout, continue to enhance its competitive advantage and increase its business scale; 2) the self-supply ratio of major materials has increased, production efficiency has improved, and profitability has been further improved. Based on the median forecast value, the company expects to achieve net profit of 57 million yuan in 2023Q4, an increase of 168% year-on-year and a decrease of 6% month-on-month; it is expected to achieve non-net profit deducted to mother of 53 million yuan, an increase of 216% year-on-year and a decrease of 7% month-on-month.
Deeply cultivate photovoltaic junction boxes, promote capacity expansion and customer introduction
The company's main products are photovoltaic module junction boxes and related accessories. Photovoltaic junction boxes are used for combined connections in the photovoltaic cell sector. They are an essential supporting product for photovoltaic power generation systems, benefiting from the continuous increase in the number of new installed photovoltaic power plants around the world. The company is one of the main manufacturers of photovoltaic junction boxes in China, and has significant advantages in scale, technology and quality.
Bind leading customers and promote customer adoption. From 2020 to 2022, the company's share of the global junction box market was 12.07%/14.68%/13.97%. It has established long-term good cooperative relationships with leading component companies such as Longji, Jingao, and Tianhe. The top five customers account for 75% to 85% of total shipments. The company began cooperating with Tongwei on diode junction box products last year, and is currently communicating with chip junction box products.
Advanced production capacity continues to expand and expand overseas markets. In 2023, the company will produce about 300,000 sets of junction boxes per day. Production capacity is being arranged in Vietnam, and after completion, it can meet the needs of overseas markets. According to the established plan, the company will build a fund-raising project for 45 million chip junction boxes from 2024 to 2026. In addition to investment and production expansion projects using its own capital, it is estimated that the company's junction box production capacity will exceed 150 million sets in the future.
Entering the auto parts sector and expanding the second track
The company announced on January 23 that it plans to change some of the fund-raising investment projects to change the “PV Junction Box Technology Improvement and Expansion Project” to a “51% equity increase project of Jiangsu Jiangzhou Auto Parts Co., Ltd.” and a “construction project for components such as roofs, fenders, and wiring harnesses for new energy vehicles with an annual output of 6.5 million sets.” The company announced on the same day that it plans to increase the capital of Jiangsu Jiangzhou Auto Parts Co., Ltd. by 80 million yuan. After the capital increase is completed, it will hold 51% of Jiangzhou Auto Parts's shares, which will become the company's holding subsidiary. Jiangzhou Auto Parts is engaged in the production and sale of automotive interior and exterior parts, and has become a qualified supplier for leading automobile companies such as BYD. According to the performance promise, the net profit of Jiangzhou Auto Parts from 2024 to 2026 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%, the company has the right to request the original shareholders to repurchase the shares.
Automotive interior and exterior is one of the largest market segments in the auto parts sector, accounting for nearly 1/4 of the total size of auto parts. With the development of China's automobile industry, especially the new energy vehicle industry, and the strengthening of the trend of domestic replacement of auto parts, it is expected that the size of the auto parts market will further increase, and the prospects for the industry are broad. Capital increase acquisitions and fund-raising projects will effectively expand the company's second track, enhance the company's resilience to risks, and enhance overall competitiveness. At the same time, one of the main production processes for auto parts in Jiangzhou is the injection molding process, which is highly compatible with the company's existing equipment and technology, which is conducive to collaborative development.
Profit forecasting
The company's revenue for 2023-2025 is 17.66, 24.65 billion yuan, and 3.367 billion yuan respectively, and EPS is 1.74, 2.51, and 3.55 yuan respectively. The current stock price is 23.2, 16.1, and 11.4 times PE, respectively. I am optimistic that the company will benefit from the growth of the photovoltaic industry and increase its market share as a terminal box leader. I am optimistic about the gradual increase in the company's auto parts business contribution, coverage for the first time, and give a “buy” investment rating.
Risk warning
PV demand falls short of expectations; risk of demand for auto parts falling short of expectations; risk of capacity construction falling short of expectations; risk of fluctuations in raw material prices; risk of increased market competition; and systemic risks in the general market.