Main points of investment
Leader in vehicle inspection solutions. Founded in 2006 and listed on the Shenzhen Stock Exchange in December 2016, the company is the overall solution provider for the domestic motor vehicle testing industry. The company is based on the automotive aftermarket, facing intelligent transportation, using new technologies such as "Internet of things" and "cloud computing". Research, development, production and sales of a full range of in-use vehicle testing systems, networked supervision systems, motor vehicle driver examination systems, environmental monitoring systems, new vehicle offline detection systems of the whole vehicle factory, downstream customers include motor vehicle inspection agencies, government regulatory departments, driving schools, maintenance stations and other institutions. At present, the company has formally entered the field of motor vehicle testing and operation by participating in the establishment of Changsheng New Kinetic Energy in Texas, Linyi New Kinetic Energy, the acquisition of 70% equity in Xing Automobile Inspection, the 70% equity in Linyi Integrity and part of the shares in China Inspection Automobile, and has become an integrator in the automotive aftermarket.
There is still room for vehicle testing equipment, and emerging businesses are growing faster. By the end of 2019, the number of cars in the country has exceeded 260 million, and motor vehicles need to be tested by testing institutions within a specified period of time after leaving the factory. Motor vehicle testing in China includes safety testing, environmental protection testing and comprehensive testing. At present, there are about 15000 motor vehicle testing institutions in China, that is, there are 0.58 testing stations per 10,000 vehicles, compared with 2.67 stations per 10,000 vehicles in the world. The number of testing stations in China is obviously insufficient.
At the same time, although the growth rate of car sales in China has peaked, car ownership is far from peaking. In addition, the increase in the age of in-use vehicles has further increased the frequency of testing. We believe that with the increase of the number of testing stations + the number of cars + the age of vehicles in use, the demand for motor vehicle testing equipment in China will maintain a rapid growth rate in a certain period of time. The new policy gives birth to new testing demand, and the company has technical and market advantages in overload control and remote sensing equipment. According to our estimates, the two combined market space is about 30 billion, which is expected to become a new profit growth point for the company.
Car ownership lays the foundation of demand, and industry integration is just around the corner. Motor vehicle testing is mandatory, and the core variable that affects its market space is car ownership. According to our estimates based on the new vehicle inspection regulations, the market space for motor vehicle inspection in 2021 is about 45 billion yuan, which is 7.6% lower than that in 2020. Under the new rules from 2021 to 2026, the market space for annual automobile inspection in China will increase from 44.87 billion yuan to 70 billion yuan, with an average annual compound growth rate of 9.30%. At present, the company's main business is motor vehicle testing equipment, and cut into motor vehicle testing services from 0 to 1. The company relies on the acquisition of high-quality sites and self-built sites to copy the integrity management and service model of Linyi, while enabling insurance and used car evaluation and other business, will significantly enhance the profitability of the acquisition site, the increase in annual inspection fees will also further weaken the adverse impact of the new regulations.
The chain of testing stations is the trend of the times, and industry integration highlights social value. At present, the main problems in the motor vehicle testing industry are as follows: poor customer experience in ① testing; shortage of ② employees; generally small scale of ③; ④ market disorder. Through the analysis of foreign mature industry development experience and relevant policies, the future leading enterprises to carry out standardization, collectivization, brand operation is the inevitable trend of industry development. With the continuous merger and integration of companies such as safe car testing, the chain of large-scale testing institutions will optimize the ecology of the industry, improve service quality, and enhance the professionalism of testing.
We maintain our profit forecast and expect the company's net profit for 2020 to 2022 to be 2.05pm, 323pm, 440 million and EPS, respectively, to 1.06x1.67, 18.0 times the closing price of PE on December 31, maintaining a "prudent overweight" rating.
Risk hints: the motor vehicle testing policy has changed more than expected; the progress of mergers and acquisitions is not as expected; the government bidding for excess control and remote sensing is not as expected.