Zheng Meiji (601717): Hydraulic Mount Leader: Auto Parts Business Improvement Drives Double Performance Valuation Increase

浙商證券 ·  05/08  · Researches

Key points of investment

Leading domestic hydraulic stents have been restructured and innovated, coal mining machinery and auto parts business are dual-driven, and the profitability of leading domestic hydraulic bracket companies has steadily increased. From wholly state-owned ownership to participation by state-owned executives, Hongyi's investment in social capital was introduced in 2021, and the company's equity was further optimized to achieve in-depth reform of mixed ownership and stimulate more vitality. The company acquired ASIMCO and SEG (the global starter and generator division of Bosch in Germany) in 2016 and 2017 and successfully entered the auto parts industry. Since then, the coal mining machinery and automobile parts business have been dual-driven. In 2022, the company's revenue was 32.04 billion yuan, of which coal mining machinery revenue was 15.55 billion yuan, accounting for 48.5%, and the automobile zero business revenue was 15.15 billion yuan, accounting for 47.3%. The revenue CAGR for 2018-2022 was 5.4%, the net profit CAGR was 39.3%. Profitability increased steadily. Net interest rates increased by an average of 1.15 pct per year. ROE increased from 7.26% in 2018 to 14.25% in 2022, and the ROE center was 10.2%.

Coal mining machinery: Demand for intelligent transformation is strong, and demand for updates will continue. The company's comprehensive mining business continues to benefit from domestic hydraulic bracket leaders. Hydraulic stents account for about 45% of comprehensive mining equipment expenses. Due to factors such as the gap between downstream coal supply and demand, implementation of insurance and supply policies, equipment updates, etc., the amount of fixed asset investment completed in the coal mining and washing industry rose from 28.5 billion yuan in 2018 to 498.8 billion yuan in 2022, with a CAGR of 15.5%. The company's coal mining machinery is booming, and coal mine revenue increased from 6.17 billion yuan in 2018 to 15.55 billion yuan in 2022, with a CAGR of 26%. According to the “2020 Annual Report on the Development of the Coal Industry”, the number of mines in China should be controlled at around 4,000 in 2025, and 1,000 intelligent coal mines will be built, and the penetration rate of intelligent mining work surfaces will reach 25%. It is expected that in the future, demand for intelligent transformation of coal mining machinery, production capacity renewal and equipment renewal will continue, and the company's coal mining machinery represented by hydraulic brackets is expected to continue to benefit.

Auto parts business: ASIMCO and SEG dual-core, their performance gradually improved, and the NEV sector continued to break through and the company's auto parts business gradually improved. ASIMCO's revenue for 2018-2022 progressed steadily, and performance was generally stable. In 2022, the National Six Standard was implemented, commercial vehicle sales were overdrawn early, and sales were under pressure in the short term. Coupled with repeated outbreaks in parts of the country, ASIMCO's revenue in 2022 was 3.45 billion yuan, down 17% from the previous year. In the future, as commercial vehicle demand recovers and the impact of a low base is compounded, commercial vehicle sales are expected to improve significantly. Affected by many factors such as the increase in the penetration rate of new energy vehicles, the decline in demand for internal combustion engine vehicles, and the COVID-19 pandemic, Songer's performance reached rock bottom in 2020. As the company completed global business restructuring, profitability improved markedly, and turned a loss into a profit in 2022. In the future, the layout of new energy passenger vehicles will continue to increase, and the new energy shock and noise reduction and drive motor business is expected to continue to break through, contributing incrementally.

Profit forecasting and valuation

Net profit attributable to the mother in 2023-2025 is estimated to be 3.2 billion, 3.8 billion, and 4.5 billion yuan, up 26%, 19%, and 19% over the previous year. The current stock price corresponding to PE is 8 times, 7 times, and 6 times. Give the purchase a rating.

Risk warning: The new addition, renewal and intelligent process of coal equipment falls short of expectations, the recovery of commercial vehicle demand falls short of expectations, the expansion of the NEV business falls short of expectations, and the risk of fluctuations in raw materials.

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