Based on EGR, the four major business segments are comprehensively laid out, and the business is diversified: the company was founded in 2004 and has been deeply involved in engine exhaust gas recirculation (EGR) systems for a long time. After acquiring Weiyan Precision in 2018, the business has moved towards a diversified development path integrating EGR, iron cores, natural gas rail assemblies, and precision structural components, and new businesses continue to emerge. Furthermore, the company announced an equity incentive plan in October '23, which will help to further motivate the company's management and achieve long-term and stable development of the company.
With the dual support of national six plus new energy, EGR leaders have added additional momentum for development: in terms of diesel engines, EGR is less used under the national five policy; the introduction of the national six policy has made EGR the mainstream solution for diesel engine exhaust treatment, and the EGR penetration rate has increased rapidly; in terms of gasoline engines, EGR plays an important role in reducing operating fuel consumption and improving ride quality for traditional hybrid/plug-in hybrid new energy vehicles, and the increase in the market share of new energy vehicles has led to growth in the EGR business. The company is the market leader for diesel engine EGR, and gasoline engine EGR customers are expanding rapidly, and it is expected that it will achieve further business breakthroughs with the dual help of Guo6+ New Energy.
The trend of high-end new energy vehicles is gradually showing, and the volume and price of motor cores are rising rapidly: the motor core is a core component of the drive motor for new energy vehicles, and accounts for about 30% of the cost in the motor. Due to a series of reasons such as rising oil prices and license restrictions, consumers are increasingly favoring new energy vehicles, and sales are increasing year by year. New energy vehicles are currently becoming high-end and sporty, and the number and unit price of bicycle motors are constantly rising. Currently, automakers such as Tesla, Ideal, NIO, and Great Wall are all company customers, and in the first half of the year, a number of new customer projects were targeted. In the future, with the further expansion of the company's production capacity and the expansion of the motor core market, the company's core business is expected to enter the fast track of development and become the second pole of growth.
Sales of heavy natural gas trucks have continued to rise, driving new business growth points: the rapid decline in LNG market prices has initiated the market for heavy natural gas trucks, and sales of heavy natural gas trucks have continued to rise. The company undertakes Bosch from the manufacture of the core component “high-flow natural gas nozzle” to the supporting business of the “natural gas injection system” assembly. It directly supports Bosch. The main customers of indirect mainframe manufacturers include Weichai and Cummins. The company's natural gas business industry has considerable room for growth and is expected to become a high growth point for the company's business.
Acquisition of Weiyan Precision, collaborative development of the parts business chain: In 2018, the company acquired Weiyan Precision. Weiken Precision was invested and founded by Japan Microresearch Co., Ltd., which was the first foreign-funded precision mold company in China at the time. Through the introduction of Japanese management philosophy and process technology, Weiyan Precision gradually established its leading position in China's precision mold industry. Based on the original business of Weiyan Precision, the company lays out military and satellite communications services and participated in the supply of satellite communication technology for the Huawei Mate 60 Pro. The company has extended the auto parts industry chain from EGR system products to upstream precision stamping parts, and the overall industrial layout has been improved.
Profit forecast and investment advice: The company's business mainly consists of EGR products, new energy products (including motor cores and natural gas injection systems), and precision components. Among them, EGR and motor cores are the company's main business growth, and the precision parts business field is also constantly expanding, with full potential for growth.
We forecast that in 2023/2024/2025, the company will achieve operating income of 19.10/29.90/3.840 billion yuan, +66.33%/56.54%/28.43% year-on-year, net profit of 1.87/3.21/ 421 million yuan, +147.57%/71.30%/31.22% year-on-year, corresponding to EPS of 0.81/1.39/1.82 yuan. First coverage, giving the company a “recommended” rating.
Risk warning: commercial vehicle sales fall short of expectations; sales of new energy vehicles fall short of expectations; vehicle price war affects corporate profits; raw material prices are rising.