On October 11, the company released the holding subsidiary Grammer's performance forecast. 2020Q3 is expected to achieve revenue of 458 million euros, -8% year over year; profit before interest and tax is about 6 million euros, or -48.7% YoY, which is particularly affected by about 12 million euros related to restructuring measures. Grammer expects the operating EBIT for the 2020Q3 to be 22 million Euros, +141% year-on-year, and the recovery of operations was better than market expectations. We believe that the worst time for the company is over, and future operations are expected to gradually improve. Maintaining the 2020/21/22 EPS forecast of -0.39/0.47/0.71 yuan, maintaining a “buy” rating.

Grammer, a holding subsidiary of the company, released a Q3 performance forecast, and business recovery was better than market expectations. On October 11, the company released the holding subsidiary Grammer's performance forecast. 2020Q3 is expected to achieve revenue of 458 million euros, -8% year over year; profit before interest and tax is about 6 million euros, or -48.7% year over year; of these, profit before interest and tax is particularly affected by about 12 million euros related to restructuring measures. Grammer expects operating EBIT for the 2020Q3 to be 22 million euros, +141% year over year, and operating recovery is better than market expectations. Grammer's 2020 Q3 operating EBIT increased sharply year over year, business recovery was remarkable, and there is a trend of further improvement. We believe that the worst period of the company's operations is over, and the future is expected to continue to improve.

The product binds high-quality customers, and the profitability guarantee is strong. The company is the world's leading passenger car seat headrest and armrest provider, mainly supplying German (FAW-Volkswagen, BMW) and Japanese (Honda,Toyota, Nissan, etc.), autonomous (Great Wall,Geely,Guangzhou Automobileetc.) and other high-quality vehicle customers; Germany's Jifeng has successfully expanded into the European market and has now received various model projects such as Volkswagen, Jaguar Land Rover, Daimler, BMW, and Audi. As the overall sales volume of the car market increases and market concentration increases, car companies such as German, Japanese and Great Wall have performed well, and the company is expected to continue to benefit.

M&A giant Grammer opens up new room for growth. In 2019,Jifeng Co., Ltd.By purchasing 100% of Jiye Investment's shares through a non-public offering of convertible bonds, shares, and cash payments, it indirectly holds 84.23% of the target company Grammer's shares. Grammer is a global leader in commercial vehicle seats, and automotive interior products (headrests, armrests, and center consoles) mainly support high-end vehicle brands, complementing the company's peers. Grammer's interior business accounts for about 70%; commercial vehicle seat business accounts for 30%, and profitability and share continue to increase. After the merger and acquisition is completed, the company is expected to help Grammer open up the domestic market through peer channels, accelerate the penetration of the interior and commercial vehicle seat business in China, and performance flexibility can be expected.

Risk factors: Downstream customer sales declined; Germany's Jifeng loss fell short of expectations; Grammer's consolidation fell short of expectations.

Investment proposal: Through the acquisition of Grammer, the company became a global leader in automotive interiors and commercial vehicle seats. Grammer's commercial vehicle and non-road machinery seat business and interior business product technology led; domestic business accelerated implementation, and cooperation with customers such as Shaanxi Automobile and FAW continued to deepen; the seat headrest and armrest business had remarkable synergy effects. The company's worst period affected by the COVID-19 pandemic has passed, and there is a clear upward trend in future operations. It maintains the 2020/21/22 EPS forecast of -0.39/0.47/0.71 yuan, and maintains a “buy” rating.