A leading domestic car seat assembly company, the seat business can be expected to expand. The company has been deeply involved in passenger car seat parts for more than 20 years. Following the merger and acquisition of German Grammer in 2019, it has now formed a product matrix that includes various types of car seats such as passenger car seat assemblies, central control systems, interior parts, headrests, armrests, and commercial vehicle seat assemblies. The company has rich customer resources all over the world, covering foreign, joint ventures, independent and new-power car companies. As the price of raw materials increased and the shortage of cores improved, production and sales of OEMs increased. As a scarce target for passenger car seat assemblies, the company's order volume is expected to continue to grow, and profit performance can be expected in the future.
Multiple measures have been taken to reduce costs and increase efficiency. Grammer's profitability continues to improve, turning the inflection point or is currently an established European supplier of commercial vehicle seats and passenger car interior parts. It has rich customer resources and a perfect product matrix. Zi Jifeng acquired Grammer in 2019, and the parent company comprehensively reduced costs and increased efficiency in production, procurement, management, R&D, and finance. In 2023, Grammer achieved operating income of 17.723 billion yuan, an increase of 13.71% year on year; achieved operating EBIT of 0.434 billion yuan and EBIT of 0.334 billion yuan (operating EBIT was 0.252 billion yuan in the same period in 2022, and EBIT was -0.264 billion yuan due to impairment of long-term asset group including goodwill). The difference between Grammer's operating EBIT and EBIT in 2023 was mainly Because EBIT includes some one-time capacity adjustment costs and exchange losses in the American region, it achieved a net profit of 0.022 billion yuan, turning a year-on-year loss into a profit. As the integration process progresses, the inflection point of losing money is expected to be reached at an accelerated pace.
The value of the product bicycle has increased markedly, the production capacity layout has been improved, and the new business volume can be expected in the future in the fuel vehicle era. Foreign manufacturers such as Lear and Andorra monopolize the passenger car seat assembly industry. In the era of electrification, autonomous vehicle companies' model iterations are accelerating, and their demands for supply chain safety and speed of response are constantly improving, and domestic suppliers are expected to take advantage of the momentum. The company has now changed from a Tier 2 seat parts supplier to a Tier 1 seat assembly supplier, and the value of the product bike has increased from 400-500 yuan to 5000-6000 yuan for seat assemblies.
In terms of passenger car seats, as of March 31, '24, the company had a total of 9 orders. Customers include new forces, traditional OEMs, and high-end joint venture brands, and the customer structure is diverse. Furthermore, through customer accumulation and technical layout of traditional interiors, the company is actively expanding new businesses such as air outlets, and has a comprehensive layout of smart cockpits. As of March 31, 2024, there were more than 60 hidden electric air outlet projects; in 2023, the company's air outlet products achieved revenue of 0.281 billion yuan, an increase of several times over the previous year; both hidden door handles and car refrigerators were designated by customers. In terms of production capacity, the new plant is backed by industrial clusters in Anhui and Northeast China, and is expected to produce 0.8 million sets of seats (0.6 million in Hefei and 0.2 million in Changchun). The company currently has sufficient production capacity reserves, a diverse customer structure, and the volume of new business can be expected in the future.
Investment advice: The company is expected to achieve net profit of 0.419/0.826/1.238 billion yuan in 2024-2026, and the current market value corresponds to 2024-2026 PE 31/16/10 times. The company is a leading domestic car seat. With the gradual results of Grammer's integration, passenger car seats are expected to be rapidly released, giving 2024 PE a valuation of 35-40 times, corresponding to a target price of 11.55-13.2 yuan, covering the first time, and giving it a “buy” rating.
Risk warning: New customer expansion falls short of expectations, raw material prices continue to rise, customer volume falls short of expectations, etc.