Seat industry circuit, local companies welcome game breakers

As a core component of passenger cars, seats have the characteristics of high technical barriers and large market space. In recent years, smart electronics changes have continued to expand the market space. The domestic market space is expected to reach 151.2 billion yuan in 2030, and the CAGR is about 4.2% in 2023-2030. Constrained by factors such as technology and customer resources, the seat industry was monopolized by foreign investors in the past, and domestic substitution progressed slowly. In 2022, Lear, Andorra, Faurecia, and Toyota Textiles held most of the global market share, and CR5 was 78%. In terms of profit, the seat industry is labor-intensive and R&D expenses are high. Asia is generally the most profitable. For example, in 2023, the EBITDA rate in Asia was 15.0%, which is significantly higher than the 4.5% and 4.7% in EMEA and North America. In the new energy era, car companies are highly accepting of emerging seat companies. Jifeng's acquisition of Grammer broke through technical and supporting experience barriers, and used cost advantages to quickly win orders. It has been targeted for several projects by new car builders, traditional luxury car brands, traditional fuel vehicles, and leading domestic traditional independent brands. The total project life cycle revenue exceeds 60 billion yuan. 0.065 million sets of seat products were delivered from May to December 2023, and the seat unit price exceeded 10,000 yuan.

Accelerate the optimization of overseas Grammer, and profits are expected to continue to improve

Grammer is a global commercial vehicle seat giant, with a global market share of over 10% of commercial vehicle seats in 2023. By region, 1) North America: Affected by TMD, profits in North America lagged far behind other regions, with 2023 revenue of 0.62 billion euros and EBIT of -0.05 billion euros; 2) EMEA: the main revenue source for Grammer, with 2023 revenue of 1.21 billion euros, and EBIT of 0.06 billion euros; 3) APAC: The profit level is significantly superior to other regions, with 2023 revenue of 0.53 billion euros, EBIT 0.06 billion euros. During the consolidation period, the cumulative asset depreciation in 2018-2023 was 1.81 billion yuan. In particular, asset impairment lost 1.43 billion yuan after asset impairment tax in 2022. Asset impairment greatly disrupted net profit attributable to mother. Through multi-faceted integration and optimization of organizational structure, production capacity layout, and collaborative strategies, the company's overall profitability continued to improve. In 2021, it turned a loss into a profit, and net profit to mother reached 0.13 billion yuan. Net profit to mother after adjustments due to special matters reached 0.48 billion yuan in 2023, an increase of 162.6% over the previous year, and the net interest rate to mother reached 2.2%, an increase of 1.2 pct over the previous year.

Secure the basic cockpit trim panel, and horizontal expansion brings new highlights

Jifeng is a leader in the domestic headrest and armrest industry. In 2023, the global headrest and armrest market share was 17.9% and 9.4%, respectively, and revenue was 46.8 billion yuan and 2.18 billion yuan respectively. Profitability is high under high self-control rates, and gross margins are 15.6% and 17.6% respectively. In recent years, under the transformation of smart electronics in vehicles, headrests and armrests have been upgraded simultaneously with the entire chair. The global market for headrests and armrests is expected to reach 17/23.4 billion yuan in 2025. At the same time, the company has developed air conditioning outlets and vehicle refrigerator businesses, all of which have been designated by many companies, continuously opening up room for long-term growth.

Investment advice: Domestic seats are rising, and the completion of overseas integration brings huge profit flexibility. With Grammer's support, the company quickly broke through major global automakers with its own production and R&D efficiency advantages and cost advantages brought by high control rates. Ongoing orders are abundant, future orders are being placed, and the company's passenger car seat project can be expected to be profitable. At the same time, the results of the company's overseas integration are gradually reflected, and the future will bring huge profit flexibility as overseas profitability improves. Net profit due to mother for 2024-2026 is estimated to be 0.23, 0.9, and 1.33 billion yuan. The corresponding PE is 70.7X, 18.0X, and 12.1X, respectively, which gives a “buy” rating for the first time.

Risk warning

1. Downstream demand performance falls short of expectations; 2. New business development falls short of expectations; 3. Industry price war continues to intensify; 4. Profit forecast assumptions are unfounded or fall short of expectations.