CHANGSHU AUTOMOTIVE TRIM GROUP(603035):JV PLATFORMS GROWING STEADILY;ACQUIRING NEW BUSINESSES AND CUSTOMERS

类别:公司 机构:中国国际金融股份有限公司 研究员:Xue DENG/Danlin REN/Wenjuan JING 日期:2021-11-22

Investment positives

    We initiate coverage of Changshu Automotive Trim Group (Changshu Automotive Trim ) with an OUTPERFORM rating and a target price of Rmb16.30 , or 12.0x 2022e P/E.

    Why an OUTPERFORM rating?

    Adopting a joint venture production and operations model; steady investment income boosts profits. Changshu Automotive Trim focuses on the production of automotive interior parts, and it has established joint venture (JV) platforms with Peguform, Antolin, Magna, and Greiner. In 2020, investment income from the JV platforms accounted for 74.1% of the company’s operating profit, boosting its earnings. Through continuous development of the JV model, the company has entered the supply chains of well-known domestic and foreign automakers, and its products are widely supplied to customers such as FAW-Volkswagen, Beijing Benz, BMW Brilliance, and SAIC GM. By acquiring overseas advanced production technologies, the company’s manufacturing, management and R&D capabilities have strengthened greatly.

    Expanding customer base; supplying products to emerging automakers to benefit from their growing sales volume and the uptrend of new energy vehicles. Based on its long-term efforts in the automotive interior parts business, Changshu Automotive Trim has expanded its presence into products for new energy vehicles, and it has become a supplier for Tesla, Volkswagen’s MEB, Mercedes-Benz’s EQB, BMW’s electric vehicles, NIO, Li Auto, and XPeng, further diversifying and improving the company’s customer structure. We believe that emerging automakers have innovative and industry-leading product development and marketing channels, and their growing vehicle sales volume will boost Changshu Automotive Trim’s sales.

    Following the trend of automotive interior part upgrades; expanding presence in smart cockpits. Based on changes in user needs amid the trend of autonomous driving, the company has taken the lead in designing and developing smart cockpits, and it has launched its independently developed first-generation smart cockpit product in 2021. By expanding its presence in the field of autonomous driving, we believe that the company will further strengthen competitive advantages in smart cockpit products and generate synergies. We think the company will quickly supply such products to high-quality customers and projects, giving a further boost to its growth.

    How do we differ from the market  The automotive interior parts industry is a mature industry, and the market has concerns over possible insufficient growth momentum for the company. However, the company has entered the supply chains of emerging automakers, and it is expanding its presence in the smart cockpit business. We believe that the company will continue to benefit from growing sales volumes of its electric vehicle customers and the trend of intelligent upgrades for automotive interior parts in the long term.

    Potential catalysts: As the penetration rate of new energy vehicles rises rapidly, orders from emerging automakers may boost the company’s earnings growth in the short and medium term.

    Financials and valuation

    Our EPS forecast is Rmb1.09, 1.36 and 1.57 in 2021-2023, a CAGR of 16%. The stock is trading at 10.2x 2022e P/E. We initiate coverage of Changshu Automotive Trim with an OUTPERFORM rating and a target price of Rmb16.30 (12.0x 2022e P/E), offering 17.5% upside.

    Risks

    Intensifying industry-wide competition; larger-than-expected rises in raw material prices; JV platforms greatly influence profitability; Sales volume of passenger vehicle disappoints.