Description of the event

The company issued an announcement on the progress of the sale of shares in TMD in the United States.

Incident comments

TMD LLC has greatly dragged down Jifeng's performance in the past two years, and the divestment is expected to improve Jifeng's overall profit situation.

1) Analysis of TMD LLC's operating conditions: 2023 revenue of 0.27 billion US dollars, net profit loss of 0.04 billion US dollars, net profit loss of -16.5%, revenue of 0.16 billion US dollars from January to August 2024, net profit loss of 0.03 billion US dollars, net profit loss of -20.0%.

2) Analysis of TMD LLC's net asset situation: TMD LLC and Grammer have unpaid related-party debt of 0.124 billion dollars. Grammer transferred TMD LLC's related party debt to TMD LLC's parent company Grammer Inc., which was subsequently borne by Grammer Inc. during the divestment of related party debts, the net assets of TMD LLC changed from -0.05 billion dollars at the end of 2023 to 2024 $0.05 billion at the end of August.

3) TMD LLC sale pricing analysis: The company discounted TMD LLC's intangible assets - customer relationship (about 16 million US dollars) at a 100% discount, and considered that the fair value of land and houses, machinery and equipment had a certain added value compared to book value, and sold at a 22% premium on the remaining net assets. The final sale price of TMD LLC was 46.6609 million US dollars, a discount rate of 13.78%. The overall sales price was quite reasonable.

4) Comprehensive impact analysis: The sale of 100% of TMD LLC's shares is estimated to have an impact on the net profit of the company's consolidated statement of -37.5655 million dollars (approximately -0.266 billion yuan). Since the company holds 88.11% of Grammer's equity, the net profit impact amount attributable to the company's shareholders is estimated to be -33.099 million US dollars (about -0.235 billion yuan). The company has already accrued corresponding losses in the third quarter of 2024, which is estimated to start from Starting in the fourth quarter of 2024, the company will reduce TMD LLC's profit burden, and future profitability is expected to increase.

Domestic seats are rising, and the completion of overseas integration has brought huge profit flexibility. With Grammer's support, the company quickly broke through major automakers around the world with its own production and R&D efficiency advantages and cost advantages brought by its high self-control ratio. 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 being reflected, and the future will bring huge profit flexibility as overseas profitability improves. Net profit due to mother in 2024-2026 is expected to be -0.47, 0.9, and 1.33 billion yuan, corresponding to 2025-2026 PE being 17.3X and 11.8X respectively, maintaining a “buy” rating.

Risk warning

1. The downstream sales volume of the industry falls short of expectations;

2. The industry price war continues to intensify.