Domestic car seat leader, seat business volume+Grammer's profit recovery is expected. The company is a leading global car seat headrest segment leader. It acquired commercial vehicle seat leader Grammer in 2019 and became a Tier 1 car seat assembly supplier. Thanks to Grammer's empowerment, the company's continuous investment in R&D, and the steady expansion of customers, passenger car seat orders are sufficient and continue to be increased. The scale effect will be prominent, and the performance will be more certain. Furthermore, with the sale of TMD in the US (profit side temporarily under pressure in 2024), Grammer's profit is expected to be repaired as Grammer enters deep integration, and steel prices fall. Therefore, we expect net profit to be 0.063/0.811/1.299 billion yuan for 2024-2026, and 0.05/0.64/1.03 yuan/share for EPS, respectively. The current stock price corresponding to 2024-2026 PE is 237.8/18.5/11.5 times, respectively, maintaining a “buy” rating.

On the 100 billion dollar passenger car seat circuit, the company seized the opportunity to successfully break the game. Car seats are one of the most valuable components for cars and bikes (ASP over 4,000 yuan), and under the four major trends of safety, comfort, lightweight+intelligence, the size of the passenger car seat market continues to grow. It is estimated that the global/domestic space will reach 337.9/112.8 billion yuan respectively in 2027. In terms of the competitive landscape, the passenger car seat industry has high entry barriers and is mainly monopolized by foreign companies such as Andorra and Lear, while China's independent suppliers benefit from domestic replacement opportunities brought about by electric intelligence and enter the passenger car seat circuit through new customers with service efficiency, cost advantage, and product strength. Through the merger and acquisition of Grammer, the company has been empowered by technology+brand+customer resources, and has successively secured new car companies such as NIO and Ideal to break the passenger car seat assembly business. As of 2024H1, the company has received a total of 18 orders, covering new forces, traditional OEMs and high-end joint venture brands.

US TMD sales and cost reduction and efficiency measures continue to advance, and Grammer's performance is expected to continue to improve (1). 2024H1 US TMD net profit is -0.097 billion yuan, which is the main source of losses for Grammer in North America. Recently, the company successfully sold TMD LLC, which is expected to cause losses to the company's performance in the short term and improve Grammer's profitability in the long term. (2) Actively reduce costs and increase efficiency: The company actively promoted cost reduction and efficiency measures for Grammer in terms of procurement, capacity layout, management and operation, finance, etc. 2024Q2 Grammer's net interest rate increased by 1.18 pcts/1.65 pcts, respectively. As Grammer's integration enters the “deep water zone”, raw material prices fall, and overseas markets slowly recover, its profitability is expected to continue to improve.

Risk warning: macroeconomic fluctuations, raw material price fluctuations, downstream customer volume falls short of expectations.