Core views

The company's 24-year H2 performance is expected to bottom up (peak demand season+improvement in external factors such as RMB appreciation/ falling shipping costs) to reverse the difficult situation; the company's suspension and sensor business has room for growth, the component category continues to expand, there are sufficient orders on hand, and overseas orders are gradually implemented. Profit elasticity in 25 years comes from a drop in cost ratio pressure under revenue volume (suspended revenue growth rate rises, sensors continue to increase). In particular, one-time confirmation of equity incentives has been drastically reduced, interest expenses (the issuance of convertible bonds has been approved), and R&D expense rates have declined.

occurrences

On August 31, the company's convertible bond financing was approved by the Securities Regulatory Commission; in September, various projects such as suspension were announced successively; currently, the company may benefit from improvements in the external macro environment, and profitability is expected to improve marginally.

Brief review

Revenue achieved rapid growth in 24 years, the suspension and sensor business contributed flexibly, and domestic sales strengthened.

24H1 achieved revenue of 3.184 billion yuan, +21.7% year over year, of which TPMS (largest business) revenue was about 0.985 billion, +20%, accounting for about 31.5% of revenue; the revenue of the emerging business air suspension and sensor business was about 0.424 and 0.31 billion, respectively, +44.5% and +51.7% year over year, respectively, and the total revenue share increased to 23% (+4.1pct year on year); traditional business revenue of metal tubes and valves was about 0.75 and 0.38, respectively Billions, +8.4% and +5.1% year-on-year respectively, accounted for about 36% of total revenue. Looking at the subregion, 24H1's domestic and foreign sales revenue accounted for close to 1:1. Among them, domestic sales benefited from the volume of emerging businesses such as suspension. Revenue was +43% year-on-year, accounting for an increase of about 7.5 pcts year-on-year (surpassing export sales for the first time); while export sales were constrained by weak demand in the European and American markets, current revenue was only +5.8% year-on-year.

Profit was under pressure due to equity incentive fees and rising prices of imported raw materials, and revenue growth in 25-26 drove cost ratio pressure reduction or profit elasticity.

The company's expenses were high during the 24-year period. In particular, the annual equity incentive confirmation management expenses are expected to be about 0.12 billion yuan, of which Q2 is about 0.039 billion yuan (H1 total is about 0.7.7 billion yuan, H2 narrows), and the net profit for Q2 after restoration is +30% year over year; equity incentive expenses for 25 years are about 0.036 billion yuan, -0.084 billion yuan year on year. In addition, the company's R&D investment is still increasing due to the expansion of emerging businesses such as idle suspension, sensors, and ADAS. The 24H1 R&D cost rate was as high as 8.52%, +1.05pct; the overall period cost rate was about 20.68%, +1.33pct; by business, 24H1's overall gross margin was about 27.13%, -0.65pct year on year, among which traditional business, idle suspension business or year-on-year stability (starting scale hedging annual decline), sensor and adas business declined or was constrained by rising procurement costs for imported chips (RMB devaluation contribution); Looking at subsidiary companies, Baofu China (TPMS domestic) net profit declined slightly (0.02 billion, -0.004 billion year on year), Hefei Baolong (ADAS, etc.) increased revenue and loss (revenue 0.43 billion, +38% year over year; net profit -0.017 billion, increase loss 0.035 billion), and Dill (North American business) was stable (net profit 0.158 billion billion).

The range of air suspension and sensor components has been expanded, with sufficient orders on hand, and overseas orders and production capacity landed.

1) The company has the ability to integrate air suspension systems. In addition to superior products such as air springs, gas supply units, air storage tanks, and sensors, the company is currently gradually expanding components such as shock absorption and control. The variety of homemade components is leading domestically, and the advantages of R&D integration, cost control, and scale are outstanding.

2) At present, the company announced that the total amount of pending orders is as high as 10 billion yuan. In addition to high-quality domestic customers such as Ideal, BYD, and Chery, it first announced an order project for a well-known European OEM in September. In addition, the company's convertible bonds were approved on 8.31, and it plans to raise 1.39 billion to expand production capacity and have room for growth.

3) In addition, the company has a rich lineup of sensor products, endogenous+epitaxial (merger and acquisition of German PEX, Dragon Sense) and overseas (Hungary, etc.) investments to build factories, benefiting from automotive intelligence and growth space.

Investment advice: The company's sensor and suspension business is growing, and the 24-year H2 performance is expected to bottom up (peak demand season+improvement in external factors such as RMB appreciation/falling shipping costs). Profit elasticity in 25 years comes from a drop in cost ratio pressure under revenue volume (rising idle revenue growth rate, continued high sensor growth). In particular, one-time equity incentive expenses were drastically reduced, interest expenses decreased after convertible bond financing was implemented, and R&D cost rates declined.

We expect the company's revenue in 2024-2026 to be approximately 6.96/8.94/11.2 billion yuan, respectively, +18.1%/+28.5%/+25.2% YoY. Among them, the TPMS revenue was 2.05/2.25/2.48 billion yuan; automobile metal fittings were 1.49/1.57/1.65 billion yuan, respectively; valves were 8.2/9.0/ 9.0.9 billion yuan; air suspensions were 1/2/3 billion yuan; sensors were 0.8/1.12/1.57 billion yuan, respectively; and others were 8.0/11.0/15.0.1 billion yuan, respectively.

We expect the company's net profit to be about 0.404/0.606/0.738 billion yuan, respectively, corresponding to PE of about 20.6, 13.8, and 11.3 times, respectively, giving it a “buy” rating.

Sensitivity analysis: Under the optimistic scenario, the company's revenue grew rapidly, and the cost of raw materials dropped significantly. 2024-2026 revenue was 70.7/93.1/119. 0.4 billion yuan, respectively, +19.9%/+31.6%/+28.3%, split by business: TPMS revenue was 2.06/2.29/2.54 billion yuan, respectively; automotive metal fittings were 1.5/1.58/1.67 billion yuan; valves were 0.82/0.91/1.01 billion yuan respectively; air suspensions were 1.03/2.16/ 3.36 billion yuan; sensors were 0.83/1.19/1.71 billion yuan respectively; others were 0.83/1.17/1.65 billion yuan, respectively. The comprehensive gross margin was 27.7%/27.6%/27.5%, and the net profit margin was 6.63%/7.78%/7.68%, respectively. The corresponding net profit to mother for 2024-2026 was 0.492/0.735/0.921 billion yuan, respectively, +29.8%/+49.6%/+25.2%, corresponding to PE about 17.0, 11.3, and 9.0 times, respectively.

Under the pessimistic scenario, the company's revenue growth has slowed, and raw material costs have risen. 2024-2026 revenue was 6.86/8.59/10.5 billion yuan, respectively, +16.3%/+22.2%, split by business: TPMS revenue was 2.04/2.22/2.42 billion yuan, respectively; automotive metal pipe fittings were 1.48/1.55/ 1.62 billion yuan; valves were 0.82/0.89/0.97 billion yuan respectively; air suspensions were 0.97/1.84/ 2.67 billion yuan; sensors were 7.7/10.5/14.0.3 billion yuan, respectively; others were 0.78/1.04/1.39 billion yuan, respectively. The comprehensive gross margin was 26.1%/26.0%/25.9%, and the net profit margin was 4.66%/5.66% /5. 49%, respectively. The corresponding net profit to mother for 2024-2026 was 0.319/0.486/0.576 billion yuan, respectively, -15.7%/+52.3%/+18.4%, and corresponding PE was about 26.1, 17.1, and 14.5 times, respectively.

Risk warning: Industry sentiment falls short of expectations, industry competition deteriorates, raw material prices fluctuate sharply, new customer expansion and production capacity investment fall short of expectations.