DAIMAY AUTOMOTIVE INTERIOR(603730):CONVERTIBLE BOND ISSUANCE PLAN UNVEILED;PRODUCT MIX EXPANSION AND GLOBAL EXPANSION UNDERWAY

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:2022-08-16

  What's new

      Daimay Automotive Interior (Daimay) announced a plan to issue Rmb1,498mn of convertible bonds. The firm plans to use around Rmb823mn of the proceeds to fund the construction of a car interior parts industrial base in Mexico and Rmb325mn to fund the construction of a 700,000 sets/yr roof product project. Once reaching design capacity, the two projects have the potential to generate Rmb1.62bn and Rmb490mn in revenue.

      Comments

      Product mix diversifying; per-vehicle product value growing significantly. Daimay is a leading global supplier of automotive sun visors. To diversify its product mix beyond its core business of sun visors, Daimay is increasing efforts in expanding its seat headrest, overhead console, and roof business. We note that the roof is the focus of the proposed round of capacity expansion. Given Daimay's previously announced roof system integration orders from alternative fuel vehicle (AFV) manufacturers, the value of its roof products has risen to US$500-800 per vehicle, suggesting a significant improvement from that of traditional sun visor products. We believe car roof products have relatively high per-vehicle value and a good competitive landscape in North America. We think the firm could replicate the growth pattern of its sun visor and headrest businesses and rapidly expand its roof business. Daimay's breakthroughs in capacity expansion also lay a solid foundation for the development of its roof business. We expect its roof business to grow as capacity ramps up.

      Global production capability further proved to be robust; global expansion accelerating. In 2018, Daimay acquired the automotive sun visor business of the US company Motus to gain capacity in North America and Europe. It has successfully expanded overseas and now provides stable supply to North America, Europe, Asia Pacific, and other regions. We expect the proposed capacity expansion in Mexico and China to allow localized supply for orders on hand. Daimay's core competitiveness, in our view, is its high self-sufficiency rate of structural parts and strong cost control. We expect the firm to increase its global market share as global capacity expands and underperforming companies exit the market following the COVID-19 outbreak.

      Rising raw material prices and shipping costs temporarily weigh on profitability; we expect the pressure to ease in the long term. Overseas business accounted for 79.2% of Daimay's revenue in 2021. In 4Q21, the firm's gross margin fell 18.14ppt QoQ to 10.51%, as its profitability was temporarily affected by rising raw material prices (including chemical raw materials and engineering plastics) and shipping costs. However, raw material prices and sea freight rates have been falling since 2022. We expect Daimay to see a recovery in volume, price, and profit with a marginal decline in costs, smooth ramp-up of capacity, and gradual growth in orders.

      Financials and valuation

      We largely maintain our 2022 and 2023 earnings forecasts. The stock is trading at 25.5x 2022e and 22.9x 2023e P/E. Maintain OUTPERFORM. Considering the proposed issuance of convertible bonds to fund capacity expansion in the medium and long term shows the firm’s confidence in its future development, we raise our TP by 20.7% to Rmb18.10 (28.9x 2022e and 26.0x 2023e P/E), offering 13.3% upside.

      Risks

      Unexpected increases in raw material prices; higher-than-expected sea freight rates; COVID-19 resurgence disrupting the resumption of work.