The company's recent situation

On September 23, the company disclosed an announcement to sell shares in TMD in the US. Its holding subsidiary Grammerag plans to sell 100% of TMD's shares to APC LLC at an initial transaction price of 40 million US dollars, and is expected to lose 0.28 billion-0.38 billion yuan after the divestment.

reviews

Grammer's profit is expected to improve significantly after the divestment of TMD, or drive a reversal in 2025 results. 1H24 Grammer Europe/Asia Pacific achieved an EBIT of 15.4/23.5 million euros, with profit margins of 2.7%/9.2% respectively; however, the EBIT in the American region was -9.6 million euros, corresponding to a profit margin of -2.9%. Although losses have narrowed significantly along with business integration and deepening cost reduction and efficiency measures, they still generated an annualized loss of about 0.2 billion yuan. In the North American business, TMD is mainly engaged in automotive injection molding and blow molding molds. The process difference between injection molded parts and die-casting parts is weak. The synergy with the interior parts of the company's main products is weak, and is constrained by high labor costs. The net profit in 2023 was 0.26 billion yuan, which is the main cause of losses in North America. We believe that after divesting TMD assets, Grammer America is expected to significantly reduce losses or drive a reversal in 2025 results.

The car seat industry has had a long and heavy snowfall, and there is plenty of momentum for domestic replacement leaders to grow. The car seat track has large space (the domestic market size is nearly 100 billion yuan in 2022), and the pattern is good (5 foreign companies mainly occupy 70% + of the market in 2022). Under the trend of new energy, the rise of independent brands is driving the seat industry to usher in domestic alternative opportunities. Based on Grammer's brand and R&D experience, the company quickly entered the passenger car seat industry and became a domestic replacement leader. Leading customers have continued to expand since 2024. The 1H24 was designated by BMW in Germany to achieve breakthroughs from overseas customers, added orders from leading independent customers, and received additional models from the original new power brands. High-quality orders are being implemented at an accelerated pace. According to our statistics, as of September '24, we have announced that the number of on-hand orders exceeds 70 billion yuan, corresponding to annualized revenue exceeding 10 billion yuan, laying the foundation for growth with abundant project accumulation.

The passenger car seat business is being put into operation at an accelerated pace, and it is expected that profits will gradually be realized in 2025. According to the 1H24 interim report, along with mass production of new power customer projects at the Hefei Phase I and Changzhou factory, the company delivered a total of 0.089 million seat sets, corresponding revenue of 0.897 billion yuan, +731% over the same period last year, and net profit to mother of -0.023 billion yuan (-0.061 billion yuan for the same period last year), which drastically reduced losses over the previous year. We determine that 2Q has reached the break-even point of the seat business. Looking ahead, we believe that orders for Audi, Volkswagen, etc. will be released centrally in 2H24-2025, while production capacity in Ningbo, Changchun, Tianjin and other places is expected to be put into operation. The release of scale effects is expected to further dilute early R&D expenses and boost profitability of new projects. We expect the seat business to begin contributing positive benefits in 2025.

Profit forecasting and valuation

Considering the 24-year one-time loss caused by the divestment of TMD, we lowered our 2024 profit forecast by 78.3% to 0.08 billion yuan; based on careful consideration of global operations, we maintained our 2025 profit forecast. The current stock price corresponds to 16.4 times P/E in 2025. Maintaining an outperforming industry rating and maintaining the target price, corresponding to 20.0 times P/E in 2025, with 21.7% upside compared to the current stock price.

risks

1) Fluctuations in overseas exchange rates and raw materials affect profits; 2) Downstream customer volume in the seat business falls short of expectations; 3) risk of impairment of goodwill.