Key points of investment:

A leading automotive sealing strip company, specializing in products and deeply involved in the industry.

The company was founded in 1994 and has been in the automotive seal industry for nearly 30 years; listed on the Shanghai Stock Exchange in 2016; in 2023, Taizhou Financial Investment became the company's largest shareholder, empowering the company's development. Rubber and plastic seals are the core products, accounting for 96.83%. In 2023, the company achieved revenue of 1.066 billion yuan, +14% over the same period, and achieved net profit of 0.151 billion yuan to mother, +20% over the same period last year.

The trend of domestic substitution is clear, the competitive landscape is reshaped, and market share is expected to increase.

According to a report by the Securities Times Network, the market space for automobile seals in China in 2019 was around 17-18 billion. Demand for cost reduction from automakers has been strong in recent years. Local seal manufacturers have strong cost advantages. Domestic substitution is expected to accelerate, and the competitive landscape is being reshaped. As a leader in the domestic sealing strip industry, the company has a significant first-mover advantage, and its market share is expected to continue to increase in the future.

Significant cost control advantages, continuous improvement of customer structure

The company has outstanding advantages in cost control. The yield rate is above 95%, far exceeding the industry average. In the current context where the price war pressure from automakers is being transmitted to parts companies, it favors companies with cost advantages. The automotive sealing strip industry ecosystem is relatively closed. The company actively adjusts its strategy, continuously improves its customer structure, and is on a healthy development path.

Two major products, European guide slots and frameless seals, help new profit growth.

1) European-style guide slot: Successfully obtained Volkswagen Lavida's target, breaking the foreign monopoly. The European guide groove has good texture, excellent sealing and strong noise reduction ability. As the average selling price of own-brand cars increases, the penetration rate of European-style guide slots is expected to continue to increase. The company is one of the few companies that can produce European-style guide slots. It has few competitors and a strong cost advantage, and the business is expected to continue to grow.

2) Frameless sealing strip: leading domestic replacement, it has been targeted by many projects. As competition for the appearance of new energy vehicles increases, frameless seals will become the mainstream configuration for middle and high-end new energy vehicles in the future. The company is the first domestic-funded enterprise that can provide frameless seals, and has significant first-mover advantages and technical advantages.

In 2023, the company won the pinnacle of 8 frameless sealing strip projects, including Zhijie S7, S9, Lynk & Co, Extreme Krypton 001, Extreme Krypton 007, GM, Audi, and BAIC Huawei Enjoy the S9.

Profit forecasting and investment advice

We expect the company's revenue for 2024-2026 to be 1.252, 1.587, and 1.983 billion yuan, respectively, and net profit to mother of 0.22, 0.286, and 0.365 billion yuan, respectively. According to the closing market value on September 26, the corresponding PE is 15, 12, and 9 times, respectively, with reference to comparable company valuations. At the same time, considering that the company is a leader in the industry segment, performance growth is steady, and the first coverage is given a “buy” rating.

Risk warning

Automobile sales fall short of expectations, sales of specialty products fall short of expectations, and the risk of fluctuations in raw material prices.