Focus on the layout of automotive energy-saving and environmentally friendly parts. Tenglong Co., Ltd. focuses on the R & D, production and sales of automotive energy-saving and environmental protection parts, mainly laying out two parts: automotive thermal management system parts and automotive engine energy-saving and environmental protection parts. among them, the main products of automotive thermal management system parts are automotive air conditioning pipes, automotive thermal management system connection hard pipes and accessories. The main products of automobile engine energy saving and environmental protection parts plate are EGR (automobile exhaust gas recirculation) system, sensor and automobile hose. At the same time, in 2020, the company acquired Xinyuan Power and entered the field of hydrogen fuel cells.
Mergers and acquisitions enter the field of hydrogen fuel cells. According to the third quarterly report of Tenglong shares in 2020, as of September 30, 2020, the company had held 40.36% of Xinyuan Power. Xinyuan Power is the first company committed to fuel cell industrialization in China, which is mainly engaged in the design, development, manufacturing and technical services of hydrogen fuel cell membrane electrodes, stack modules, systems and related test equipment, and is in the core position in the middle reaches of the industry chain.
The number of fuel cell vehicles registered in China reached 2737 in 2019, an increase of 79% over the same period in 2018. On the basis of "Technology Roadmap for Energy Saving and New Energy vehicle Industry 2.0", it is conservatively estimated that the number of hydrogen energy vehicles in China will reach 50,000 in 2025, including 10,000 commercial vehicles and 40,000 passenger vehicles. Assuming that Xinyuan Power has a 5% market share, it will bring an annual income of 240 million yuan. It is 3.08 times the revenue of Xinyuan Power in 2019.
The quantity and price of parts and components of automobile thermal management system have gone up. The main products of the company's automotive thermal management system parts business are automotive air-conditioning pipes, automotive thermal management system connection hard pipes and accessories. The increase in the penetration of new energy vehicles has led to an increase in the price of bicycles in the thermal management system, and the company is expected to increase its market share after the acquisition of Tianyuan Otter.
The company's market share was about 12% in 2019. We assume that if the company's market share increases to 15% in 2025, the company's business income is expected to reach 1.26 billion yuan, 1.75 times that of 2019.
The sixth year of the sixth year promotes the outbreak of EGR demand. EGR is the company's traditional business, and in May 2017, the company acquired Leo, which is engaged in the EGR business. EGR system can reduce the content of NOx (nitrogen oxide) in automobile exhaust and improve fuel economy at the same time. The sixth national standard, issued on June 8, 2018, requires NOx nitrogen oxide emissions from cars to be lower than 35mg/km, which is 41.7 per cent lower than the 60mg/km allowed by national five and six a standards. Assuming that the company has a 10% market share in EGR in 2025, its business revenue is expected to reach 360 million yuan, about 1.98 times that of 2019.
Profit forecast and valuation. We expect the company to achieve a net profit of 1.65 yuan and 218 million yuan in 2020-21, corresponding to an EPS of 0.76 yuan and 1.00 yuan per share. Considering the complete industrial chain layout of the company's automotive thermal management system, as well as the rapid growth of domestic demand for new energy vehicles, the company is given a "better than the market" rating of 23-26X PE in 2021 with a reasonable value range of 23-26 yuan.
Risk hint. (1) the acquisition process of Xinyuan Power is not as expected. (2) the intensification of competition affects the improvement of the company's market share and gross profit margin. (3) the competition of national six non-EGR solutions. (4) the integration of M & A companies is not as expected.