\u3000\u3 Bohai Water Industry Co.Ltd(000605) 133 Jiangsu Rongtai Industry Co.Ltd(605133) )
Key investment points:
Jiangsu Rongtai Industry Co.Ltd(605133) is the leader of aluminum alloy die castings for automobile steering system in China. The company has been deeply engaged in aluminum alloy die castings of chassis systems such as automobile steering and transmission for 20 years, and the revenue of steering system accounts for 66.8%, which is the core business of the company; The steering gear housing of passenger cars accounts for more than 20% of the market and is the core product of the company. Through Bosch, ZF, ThyssenKrupp and other global large multinational Tier1, the company supplies SAIC Volkswagen, FAW Volkswagen, Mercedes Benz, BMW, Audi, Ford, Volvo and other world-famous OEMs.
Financial analysis: the expansion of production suffered from the slowdown of the global auto market, and the profit was suppressed in the short term. From 2017 to 2020, the company’s revenue and net profit CAGR were 15.4% and 4.3% respectively. The revenue increased rapidly, the profit performance was weak, and the gross profit margin was the main drag factor. Since 2016, the company’s fixed assets have continued to grow, increasing the depreciation / income of fixed assets from 11.2% in 2017 to 13.8% in 2020, suppressing the company’s gross profit margin. It is expected that the impact of depreciation will gradually decrease with the increase of income.
From 2021 to 2025, the demand for die castings of new energy passenger vehicles CAGR is 61.8%. 1) The automobile will enter the era of aluminum alloy, and aluminum die castings (especially chassis and body structural parts) have a large growth space. 2) At present, the pattern of aluminum die castings is very scattered. With its large-scale and integrated application in automobiles, the substantial growth of investment in equipment and R & D will significantly raise the industry threshold. Listed companies have financing advantages and continue to expand production, and the industry concentration will be greatly improved. 3) We estimate that the CAGR of die casting demand from 2021 to 2025 is 10.4%; Among them, the demand for new energy passenger vehicles CAGR is as high as 61.8%, ushering in rapid growth.
The volume of new energy business is about to be superimposed, and the company continues to expand overseas, so the growth of the company can be expected. 1) Through IPO and convertible bond raising, the company has vigorously expanded the production capacity of new energy business. The “three power” products have received orders from customers such as Byd Company Limited(002594) dmi, Great Wall DHT, rivian and North American general motors. It is expected that the revenue will increase significantly in the next 2-3 years. 2) Overseas business continues to expand, accounting for more than 30% of revenue in 2020. The company’s overseas revenue mainly comes from North America. It is expected that North America will copy the sharp jump path of new energy penetration in Europe in 2020 in 2022, and the company is expected to fully benefit.
Profit forecast and Valuation: it is estimated that the net profit attributable to the company from 2021 to 2023 will be 120 million yuan, 170 million yuan and 250 million yuan, with a year-on-year growth rate of – 8.3%, 46.4% and 47.2%, and CAGR of 25.4%. Referring to the performance and valuation of aluminum alloy die casting company in 2022, considering the small market value and large growth space of the company, it is given a “buy” rating of 25 times PE in 2022 and a target price of 26.79 yuan for the first time.
Investment requirements
Key assumptions
1) assume that the revenue growth rate of auto parts business from 2021 to 2023 is 15%, 35% and 30% respectively, and the gross profit margin is 26%, 28% and 30% respectively;
2) assume that the growth rate of mold revenue from 2021 to 2023 is 10%, 20% and 20% respectively, and the gross profit margin is 52%, 54% and 56% respectively.
Our view different from the market
1) the competition pattern of automotive aluminum alloy die castings in China is extremely scattered. With its application in automobiles becoming larger and integrated, the industry threshold has been greatly raised; Ningbo Xusheng Auto Technology Co.Ltd(603305) , Ikd Co.Ltd(600933) and other listed companies including the company have made use of their financing advantages and continued to expand their production in recent two years. The scale is expected to expand rapidly, resulting in a significant increase in industry concentration.
2) the company’s new energy vehicle business is progressing smoothly. As Tier1, it received Byd Company Limited(002594) DMI and Great Wall Motor Company Limited(601633) DHT orders in China; North America has received orders from end customers such as North American GM, rivian, paccar and stellantis, which is expected to fully benefit from electrification in North America. Catalytic factors of stock price rise
The development of new energy vehicle business customers exceeded expectations, and the progress of electrification in North America exceeded expectations.
Valuation and target price
We estimate that the net profit attributable to the company from 2021 to 2023 will be 120 million yuan, 170 million yuan and 250 million yuan respectively, with year-on-year growth rates of – 8.3%, 46.4% and 47.2% respectively, and CAGR of 25.4%. We selected four mainstream companies in the field of aluminum alloy die castings Wencan Group Co.Ltd(603348) , Ningbo Xusheng Auto Technology Co.Ltd(603305) , Ikd Co.Ltd(600933) , Nanjing Chervon Auto Precision Technology Co.Ltd(603982) as comparable companies. Referring to the performance and valuation of comparable companies in 2022, considering the small market value and large growth space of the company, we gave them 25 times PE in 2022 and a target price of 26.75 yuan.
Risk tips
The price rise of aluminum alloy is higher than expected, the demand of automobile is lower than expected, the progress of new energy vehicle business is lower than expected, and the progress of overseas expansion is lower than expected.
