Longsheng Technology is the domestic EGR leader, expanding the field of new energy vehicles and automotive precision parts. The company focuses on three major business segments: it has been deeply involved in the EGR system for nearly 20 years. Through the acquisition of Weiyan Seiko, it has gradually laid out the precision parts segment and also entered the NEV sector. The three major business segments have gradually become a “three-legged” situation. Policies and markets have had a great impact on the company's business, but with the implementation of passenger car projects and mass production of drive motor projects, EGR and New Energy have become a huge driving force for the company's growth. Precision parts have benefited from the steady operation of Weiken Seiko, and profits are relatively stable.
Policy promotion and hybrid rise are helping the EGR sector grow. National 6 and non-road countries 4 are becoming more strict on emission standards for automobiles and fuel engines. The company's EGR plays a key role in reducing emissions from commercial vehicles and preventing hybrid explosions to reduce fuel consumption. With the increase in commercial vehicle sales and the rise of hybrid passenger cars, and the company is deeply tied to strong customers such as BYD, EGR system revenue is expected to continue to rise in the future.
Connecting with high-quality customer resources, motor cores and natural gas jet rails are gradually being expanded as production capacity expands. The company has a leading position in the motor core market. After two fundraising investments, production capacity is estimated to reach 4.32 million units in 2025, deeply binding a foreign-owned electric vehicle and United Automotive Electronics, and will continue to be released through continuous expansion of motor core production capacity for new customers. Natural gas jet rail assembly products and Bosch have deep cooperation. Sales fluctuated slightly in the short term due to natural gas prices and other external factors, but they have benefited from national policy support and a sharp increase in domestic natural gas commercial vehicle production. At the same time, the company continues to expand new customer targets, and there is great potential for long-term development.
Actively expand the range of products, and the performance of the micro research and refining industry is growing steadily. Weiyan Seiko has fulfilled its performance promise for 2018-2020. The current profit is quite impressive. 2023H1 net profit is 26 million yuan, YoY +70.55%. Precision parts have been implemented in the fields of automotive parts and consumer electronics, and core products have been replaced by localization.
Investment advice
The company's new customers are rapidly expanding, deeply binding high-quality customers in the industry. At the same time, it has benefited from policy support and a significant increase in sales of hybrid and natural gas commercial vehicles, and future performance will continue to improve. We expect the company to achieve net profit of 1.50/2.43/340 million yuan in 2023-2025, respectively, +99.01%, +61.58%, and +39.92% year-on-year respectively. The PE corresponding to the current market value is 22.58X, 13.98X, and 9.99X, respectively. First coverage, giving a “buy” rating.
Risk warning
The risk of changes in the automobile industry policy; the risk of macroeconomic cycle fluctuations and changes in demand in the downstream industry; technical risks; the risk of rising raw material costs.