Matters:
The company released an annual performance report for 2023 and a performance forecast for the first quarter of 2024. In 2023, it achieved total operating income of 17.25 billion yuan (+15.7% YoY), net profit of 1.13 billion yuan (+17.0% YoY), net profit of 1.10 billion yuan (+35.5% YoY), 1Q24 achieved net profit of 32-380 million (1Q23 net profit of 260 million), and net profit after deducting non-return to mother reached 27—33 million (1Q23 was 210 million).
Ping An's point of view:
Business performance has been improving steadily. According to the 2024 first quarter results forecast, net profit after deducting non-return to mother in 1Q24 reached 300 million (median value of the performance forecast), making it the best performing quarter since 2019. Non-net profit deducted for the year of 2023 has basically returned to the level of 2017. Driven by incremental business and a two-wheel drive with strengthened overseas controls, the operating performance of Zhongding Co., Ltd. is improving steadily.
1Q24 further promotes the improvement of cost control and fine management of overseas factories, continuously optimizes the customer structure, and continuously improves the profitability of overseas companies. Zhongding Co., Ltd. began overseas mergers and acquisitions in 2008, and has gone through four stages of market orientation, technology orientation, strategic layout, and strengthening Chinese management. 1H23 Europe/America accounts for 32.4%/10.5% of production. Beginning in 2020, Zhongding implemented modular management according to the five major modules of the headquarters business module, air suspension system module, NVH module, fluid module, and sealing module to strengthen the management of overseas enterprises by the Chinese management team.
The air suspension track is wide, and the barriers for core components are high. Zhongding Co., Ltd. has leading advantages and high technical and manufacturing barriers. Its subsidiary, German AMK, is a high-end supplier of air suspension systems and is one of the top three leaders in the industry. AMK China's air supply unit product assembly and production lines have been launched one after another, and the hardware localization rate is gradually increasing. According to Shenzhen Stock Exchange Interactive Easy (March 22, 2024), AMK China has received orders with a total output value of about 10.4 billion yuan. Dingyu Technology, a subsidiary of the company, relies on the Group's advantages in the rubber field to focus on the R&D and production of air springs. At the same time, it will actively promote technological breakthroughs and further improve the performance of related products. Currently, Zhongding's air spring products have been completed, production line equipment has been implemented, and related business cooperation is being accelerated. The domestic air suspension market is in its infancy. According to the Geshe Automobile Research Institute, the sales volume of new cars with standard air suspensions in 2023 was about 564,000 units (+137% compared to the same period), with a penetration rate of 2.7% (1.2% in 2022). Currently, air suspensions have penetrated less than 300,000 models, and benchmark car companies (Xiaomi SU7/Huawei smart models such as the Wenjie M9, Zhijie S7, etc.) have strong demonstration effects+the sharp reduction in air suspension costs drive the air suspension load rate continues to rise. The air suspension market space is broad, and the air suspension market space is broad. It has entered the scale effect stage .
Profit forecast and investment suggestions: Zhongding Co., Ltd.'s traditional main business is strong in profitability of non-tire rubber parts, and incremental businesses such as air suspension systems, lightweight chassis systems, and thermal management systems are developing well. The air suspension sector has high entry barriers, and as the localization of air suspension progresses further, the profitability of this business will increase. According to the company's latest situation, we adjusted the company's net profit forecast for 2023-2025 to 1.13 billion/1.35 billion yuan (the previous forecast value was 11.5/13.7/1.63 billion yuan). Currently, the company's overseas business profit continues to recover, the overall business situation is steady and improving, and the valuation is low. We maintain the “recommended” rating for the company.
Risk warning: 1) The degree of overseas business recovery falls short of expectations; 2) the new business faces fierce competition, resulting in lower profitability than expected; 3) the output of major supporting customers falls short of expectations; 4) the penetration rate of air suspension systems falls short of expectations.