Incidents:
Longsheng Technology released its 2023 semi-annual performance report on August 29, 2023. 2023H1 achieved revenue of 734 million yuan, +43.76% year on year, net profit of 72 million yuan, +80.62% year on year, and net profit of 59 million yuan after deducting non-return net profit of 59 million yuan, +56.85% year on year.
Key points of investment:
Performance has improved markedly, and new targets have been implemented at an accelerated pace. The revenue share of 2023H1's new energy business, EGR systems, and precision automotive parts was 35.19%/33.61%/28.52%, respectively.
(1) New energy business: 2023H1 revenue was +83.56%, and the motor core business added project targets for various customers such as Fudi Power, Star Drive, and Jinkang Power; (2) EGR system business: 2023H1 revenue was +58.48%, the commercial vehicle market was relatively stable, the non-road machinery market received new customer orders, and the passenger vehicle hybrid sector was bound by customers such as BYD, Geely, Chery, Guangzhou Automobile, Dongan, etc. for a long time, and received multiple targeted projects; (3) Precision auto parts business: 2023H1 revenue +13.66%, Projects in the fields of electric drive/electronic control/thermal management/intelligent driving/smart cockpit/intelligent connectivity have reduced costs and increased efficiency. In the field of bronze filter projects/bronze medal electric control connection projects, they have already entered the mass production stage.
National 6B standards have been implemented and sales in the diesel engine market are steady, and the company's EGR business position in the industry is expected to continue to be consolidated. EGR system technology is one of the mainstream emission technology routes for national six diesel engines. Since July 1, 2023, the national six B standard has been officially implemented. The increase in emission standards will further reduce the emissions of harmful substances from motor vehicles to the atmosphere. According to data from the China China Domestic Association, the total sales of 2023H1 multi-cylinder diesel engines was 2,438,700 units, +5.96% over the same period, with Weichai, Yuchai, Quanchai, Yunnei and Xinchai ranking at the forefront. The company's EGR product customers include Quanchai Power, Yunnei Power, Cummins, Xinchai Co., Ltd., China Yituo, Doosan, Changchai, Yuchai, and Changfa. It is expected that it will continue to strengthen its position in the EGR industry in the future.
The prosperity of the automobile industry may continue to recover, and the company's motor core business is expected to benefit from the transformation of automobile electrification. According to data from the China Association of Automobile Manufacturers, from January to July 2023, China's production and sales of new energy vehicles were 4.591 million units and 4,526 million units respectively, up 40% and 41.7% year-on-year respectively, with a market share of 29%. Chen Shihua, deputy secretary general of the China Association of Industry, predicts that sales of new energy vehicles in China are expected to reach 9 million units in 2023. In late July, 13 departments including the National Development and Reform Commission issued “Certain Measures to Promote Automobile Consumption”. With the implementation of a new round of automobile promotion fee policies, the automobile industry is expected to continue to grow steadily. The company's motor core products have entered the supply chains of automobile brands such as NIO, SAIC, Chery, Ideal, and Great Wall. Along with the country's automobile electrification transformation, the motor core business is expected to continue to grow.
Profit forecast and investment rating We maintain our profit forecast. We expect the company's operating income for 2023-2025 to be 20.50/28.48/3,921 billion yuan respectively, with a year-on-year growth rate of 79%/39%/38%, and net profit attributable to mother of 1.95/296/419 million yuan, respectively, with a year-on-year growth rate of 158%/51%/42%, corresponding to 2023-2025 PE 23/15/11 times, respectively. The company is a leading enterprise in the EGR industry, and also lays out motor core products in the field of new energy. The rapid growth of downstream new energy vehicles with motor cores has brought new opportunities to the company. Maintain a “buy” rating.
Risks suggest that raw material prices fluctuate; the growth rate of new energy vehicles falls short of expectations; production capacity release falls short of expectations; the risk of technology route switching; and increased market competition.