Key points of investment

The company's main business is coal machinery and auto parts, and coal machinery contributed 92% of net profit in 2023. Revenue side: In 2023, the coal machinery sector had revenue of 18.8 billion yuan, accounting for 52%, and the auto parts sector had revenue of 17.6 billion yuan, accounting for 48%; profit side: in 2023, the net profit of the coal machinery sector was 3.2 billion yuan, accounting for 92%, and the net profit of auto parts was 0.28 billion yuan, accounting for 8%. The market share of hydraulic supports in the company's coal machinery products increased rapidly with the rise in coal machinery boom. When the coal machinery boom weakens, the company's intelligent products can still maintain rapid growth, and as the company lays out new energy business and subsidiaries improve quality and efficiency, the performance of the auto parts sector is expected to reach an inflection point.

Downstream demand for coal machinery has declined, and industry leaders are expected to benefit from increased concentration. The coal machinery industry began an upward cycle in 2016. The market size reached 135 billion yuan in 2022, and the CAGR in 2016-2022 was 16%.

Benefiting from coal machine upgrades, small and large coal mine clearance, intelligent construction, and coal machine exports, the industry's coal machinery sales revenue is expected to reach 157 billion yuan in 2026, and the CAGR is 2.6% in 2023-2026. Demand in the coal machine industry fluctuated in 2024. The company's market share in the coal machine sector increased from 4.2% to 11.5% in 2017-2022, continuing to benefit from increased industry concentration. At the same time, the company is expected to become a new growth point for coal machines through the intelligent layout of Hengda intelligent control.

The sales revenue of the coal machinery segment of Zheng Coal Machinery is estimated to be 18.4 billion yuan, 19 billion yuan, and 19.6 billion yuan, up 3.4%, 3.6%, and 3.1% year-on-year.

Downstream demand for auto parts continued to grow, and the company transformed into new energy sources, Changpo and Heavy Snow. The company's auto parts mainly include power system parts, chassis system parts, starters and generators. On the commercial vehicle side, benefiting from factors such as falling gas prices, relaxation of passenger car purchase restrictions, and export growth, commercial vehicle sales are expected to be 4.31 million units, 4.53 million vehicles, and 4.66 million vehicles in 2024-2026, with year-on-year growth rates of 7%, 5%, and 3%. On the passenger car side, benefiting from the rapid growth of new energy vehicles and the continued promotion of the “trade-in” policy, passenger car sales are expected to reach 28.15 million units, 29.84 million units, and 31.03 million units in 2024-2026, up 8%, 6%, and 4% year-on-year. The subsidiary ASIMCO, which mainly focuses on passenger cars, introduced strategic investment and employee shareholding in 2023, improved incentive mechanisms, and actively laid out a new energy circuit. ASIMCO's 2024-2026 revenue is expected to be 4.9 billion yuan, 5.5 billion yuan, and 5.9 billion yuan, respectively, up 16.2%, 12.5%, and 7.2% year-on-year. The subsidiary Songe's current mechanism has gradually been straightened out, and has entered the NEV circuit with high-voltage products. Songe's 2024-2026 revenue is expected to be 15 billion yuan, 16.5 billion yuan, and 17.6 billion yuan respectively, up 12.4%, 10.2%, and 6.4% year-on-year.

The company's revenue is expected to grow steadily, and the profit side growth rate is slightly higher. The company's revenue for 2024-2026 is estimated to be 39.3, 42.1, and 44.2 billion yuan, respectively, with year-on-year growth rates of 8.0%, 7.1%, and 5.0%, respectively. Net profit attributable to mother was 3.69, 4.02, and 4.31 billion yuan, respectively, with year-on-year growth rates of 12.7%, 9.0%, and 7.2%, and PE of 5.5, 5.1, and 4.7. Due to the short- and medium-term decline in demand in the coal machinery industry, the coal machinery sector contributed 92% of the company's net profit in 2023, but the profitability of auto parts is expected to increase, so the company was given an “increase in holdings” rating.

Risk warning: 1) Raw coal production falls short of expectations; 2) coal machinery exports fall short of expectations; 3) NEV expansion falls short of expectations