Incident: Company announcement: The holding subsidiary Grammer intends to sell 100% of TMD LLC's shares to APC LLC for an initial transaction price of 40 million US dollars;

At the same time, it was announced that it is proposed to change the implementing entities and implementation sites for some additional fund-raising projects.

The successful sale of TMD in the US looks forward to the release of Grammer's results in the American region. In order to focus on the main business, enhance the company's core competitiveness and Grammer's profitability in the Americas, the company's holding subsidiary Grammer plans to sell 100% of TMD LLC's shares to APC LLC at an initial transaction price of 40 million US dollars. Grammer achieved overall net profit of 0.022 billion yuan in 2023, of which TMD LLC achieved operating income of 1.848 billion yuan and net profit of -0.263 billion yuan, and TMD LLC contributed a large loss; 2024H1 Grammer achieved overall net profit of -0.035 billion yuan, and achieved operating income of 1.184 billion yuan and net profit of -0.134 billion yuan in the first 8 months of 2024. TMD LLC is still right Grammer's profits are under great pressure. According to the company's preliminary accounting, the estimated loss amount to the listed company is 0.28 billion-0.38 billion yuan. After the delivery is completed, the company's further strategic resource investment in TMD will be reduced, and at the same time, it will help improve the profitability and financial situation of Grammer's American region, thereby increasing the company's overall profit level.

Changes in fund-raising projects improve the efficiency of the use of existing resources. The company plans to change the “Hefei Auto Interior Parts Production Base Project” to a “passenger car seat assembly production base project with an annual output of 0.8 million sets”, add Jifeng Seat (Changzhou) as the main implementing body of the fund-raising project, add Changzhou in Jiangsu Province as the implementation site of the fund-raising project, and increase the estimated annual production scale of passenger car seats from 0.6 million to 0.8 million sets after the completion of the project; the construction content of the Changchun Automobile Seat Headrest, Armrest and Interior Parts Project will change from “annual output of 0.2 million passenger car seats and 1.2 million sets.” The “headrest and seat armrest cover” was adjusted to “annual production of 1.2 million headrest and seat armrests”. The current fund-raising project change did not substantially change the investment direction and production capacity scale of the fund-raising project. It is mainly a reasonable adjustment made by the company to fully improve the overall efficiency of the use of the company's existing resources in line with the overall business development plan and the business positioning of the subsidiary. In addition, the company added Shanghai Jifeng Seat Co., Ltd. as the implementing entity, and added Shanghai as the implementation site to jointly implement the fund-raising project “Ningbo Beilun Automobile Air Outlet R&D and Manufacturing Project” with Ningbo Jifeng Auto Parts Co., Ltd.

The domestic replacement space for smart electric breakout seats is vast. In October 2021, July 2022, and November 2022, the company successively obtained seat assembly project targets from three new energy OEMs, achieving breakthroughs from 0 to 1 and rapid expansion in the passenger car seat business; in February 2023, together with Grammer, broke through the Audi PPE global supply system to achieve a breakthrough of traditional luxury brands from 0 to 1, and the passenger car seat business accelerated; in March 2023, it added new model targets from the original customer, reflecting the customer's recognition of the company's product and service capabilities in the cooperation process; June 2023 It was first designated as a FAW-Volkswagen seat assembly project in January, achieving comprehensive coverage from new energy sources to traditional fuel vehicles; in February 2024, it was designated for a new model from the original customer; in April 2024, BMW, Germany was added again; in June 2024, orders from leading OEMs and new orders from original customers were added successively in July and September 2024. The passenger car seat business achieved mass production in May 2023, and a total of 0.065 million units were delivered in May-December, achieving revenue of 0.655 billion yuan; 2024H1 delivered a total of 0.089 million units, achieving revenue of 0.897 billion yuan. As of September 13, 2024, the company has targeted 19 passenger car seat projects, with a total life cycle of 85-89.7 billion yuan. The life cycle of a typical model is 5-7 years. If an on-hand order is mass-produced in the same year, an annual revenue of 14.2-15 billion yuan can be achieved, which is 353% to 373% of Jifeng headquarters's revenue in 2023, with a significant increase in revenue.

Comprehensive collaboration refers to the world's leading smart cockpit. The company acquired Grammer, Germany in 2018, completed delivery in 2019 and commenced in 2019Q4. Full integration began in 2020. After taking office with Mr. Li Guoqiang, Global COO of Grammer in 2023, the goal was to improve profitability and strongly promote the specific implementation of comprehensive cost reduction and efficiency measures. The main measures include: 1) adjusting production capacity layout, rearranging various product lines, and improving production capacity utilization and production efficiency; 2) Strengthening procurement and other supply chain management; 3) Implementing a “satellite plan” to increase management departments Capabilities and strengthen regional managers to “sink to the front line”; 4) improve process capacity and deepen factory VAVE; 5) actively implement compensation mechanisms for raw material price increases negotiated with customers; 6) strengthen detailed analysis of differences between actual monthly financial data and budget data, etc., so as to achieve continuous improvement in operating efficiency. At the same time, Grammer and Jifeng are jointly developing markets, products are mutually empowering, and customers are introducing each other to jointly increase market share. In the face of 100 years of major changes and mutual empowerment in electric intelligence in the automotive industry, customers have introduced each other to jointly increase their market share. Facing the century-old transformation of electric intelligence in the automotive industry, the company is actively embracing new intelligent products such as passenger car seats, audio headrests, hidden electric air vents, hidden door handles, car refrigerators, mobile central control systems and armrests, 3D Glass glass technology, etc., with a vertical layout of smart home-style heavy truck cabins, electric vents, hidden doorknobs, car refrigerators, etc., and breaking through new car building forces such as Tesla, NIO, and Ideal. In the long run, “Dajifeng” is expected to give full play to new car builders such as Tesla, NIO, and Ideal. Technological advantages and Ji Feng's flexible mechanism of private enterprises impacted the smart cockpit market. The sword refers to a global leader.

Investment advice: The results of integration are gradually showing, and the expansion of new products and new customers is accelerated. “Dajifeng” (Jifeng+Grammer) is expected to become a global smart cockpit leader in the future. Considering this sale of TMD LLC, we are expecting a loss of 0.28 billion to -0.38 billion yuan for listed companies. We lowered our 2024 performance forecast. The estimated revenue for 2024-2026 is 23.02/28.75/31.95 billion yuan. Net profit to mother is 0.067/0.842/1.158 Billion yuan, corresponding EPS was 0.05/0.67/0.91 yuan, corresponding to the closing price of 11.50 yuan/share on September 20, 2024. PE was 218/17/13 times, respectively, maintaining the “recommended” rating.

Risk warning: Passenger car industry sales fall short of expectations; integration progress falls short of expectations; customer development falls short of expectations; industry competition intensifies; raw material costs increase, etc.