Matters:
The company released the 2023 annual report and the 2024 quarterly report. In 2023, it achieved total operating income of 17.24 billion yuan (+15.6% YoY), net profit to mother of 1.13 billion yuan (+16.8% YoY), and net profit of 980 million yuan (YoY +28.6%). 1Q24 achieved revenue of $4.69 billion (+21.6% YoY), net profit of $360 million (+37.6% YoY), and net profit after deducting non-return to mother of $300 million (+40.5% YoY). The 2023 dividend plan is to distribute a cash dividend of 2 yuan (tax included) for every 10 shares.
Ping An's point of view:
The profitability of overseas business has improved. The company's gross margin increased to 22.0% in 2023, mainly due to a significant improvement in the gross margin of overseas business, from 14.5% in 2022 to 19.1% in 2023. The air suspension business has improved, and the gross margin of the lightweight business is low, but it is expected that profitability will improve significantly as subsequent scale effects increase. At the end of 2023, the three major regions of Asia/Europe/America accounted for 61.2%/30.0%/8.8% of production, respectively. Zhongding Co., Ltd. began overseas mergers and acquisitions in 2008. It went through several stages of global mergers and acquisitions, landing in China, and overseas control. Beginning in 2020, Zhongding built a global organizational structure system according to the five major divisions to strengthen the management of overseas enterprises by the Chinese management team, and accelerate the recovery of overseas business through measures such as cost optimization for Zhongding overseas enterprises and divestment of non-core businesses.
The customer structure is constantly being optimized. According to the annual report, BYD/Ideal and Changan are the company's 2/4/9th largest customers respectively. The new energy business reached 5.98 billion yuan in sales in 2023, accounting for 36.3% of the automobile business revenue in 2023. Its sales in the new energy sector in China were 4.32 billion yuan, accounting for 53.1% of domestic revenue in 2023. The top ten customers account for 50% of total direct and indirect sales revenue in 2023, and the concentration of high-end customers is high.
The air suspension space is vast, and the barriers for core components are high. Zhongding Co., Ltd. recently obtained an air spring position, which is a landmark. In 2023, the revenue from the air suspension business reached 8.2 billion yuan (+20% year-on-year), and gross margin increased to 22.7%. According to annual report data, up to now, the company's domestic air suspension business has received a total order output value of about 121 billion yuan, of which the total order output value for assembly products is about 1.7 billion yuan. Its subsidiary AMK, a high-end supplier of air suspension systems, is one of the top three leaders in the industry. AMK China's localization rate of air supply unit product hardware is gradually increasing. Relying on the Group's strengths in the rubber field, Dingyu Technology, a subsidiary of the company, focuses on the development and production of air springs. Recently, air springs and gas storage tank products have been targeted for projects. Self-produced air springs, air supply units and gas storage tank products have been assembled, laying the foundation for Zhongding Co., Ltd. to further expand the air suspension system assembly product market in the future. At the same time, the company is also speeding up the implementation speed of other hardware assembly products for air suspension systems (layout of magnetorheological shock absorber projects). The air suspension market space is vast, and local core component suppliers have entered the scale effect stage.
Profit forecast and investment advice: While maintaining the steady growth of traditional business, the company continues to promote the implementation and growth of the incremental business of air suspension systems, lightweight chassis systems, and thermal management systems. Currently, the incremental business is developing well. The air suspension sector has a high entry barrier. Zhongding Co., Ltd. now occupies a large share of the air supply unit, and has recently broken the ice in the air spring business. According to the company's latest situation, we fine-tuned the company's net profit forecast for 2024/2025 to 1,386 billion/1,653 billion yuan (the previous forecast value was 1,390 million/1,647 billion yuan). For the first time, we gave a net profit forecast of 1,888 billion yuan for 2026, maintaining 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.