CHANGSHU AUTOMOTIVE TRIM GROUP(603035):ROBUST DEMAND FOR NEV TRIM;EARNINGS IMPROVING THANKS TO REFINED MANAGEMENT

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/Jianyi PAN 日期:2022-08-25

1H22 results in line with our forecast

    Changshu Automotive Trim Group (CATG) announced its 1H22 results: Revenue grew 27.4% YoY to Rmb1.54bn but attributable net profit declined 6.1% YoY to Rmb200mn. In 2Q22, revenue grew 42.8% YoY or 25.3% QoQ to Rmb854mn and attributable net profit rose 10.4% YoY or 54.7% QoQ to Rmb122mn; recurring net profit increased 3.7% YoY or 68.0% QoQ to Rmb108mn. The results are in line with our forecast.

    Trends to watch

    Main company’s profit hit a new high; NEV-related business performed well. In 2Q22, the firm’s revenue and net margin increased YoY and QoQ despite COVID-19 resurgence in east China. We attribute this to the steady recovery of the new energy vehicle (NEV) related business, itself driven by new production bases and projects, which drove the 1H22 net profit from NEV (after consolidating these projects) up 77.47% or Rmb51.86mn YoY vs. 1H21; specifically, net profit from NEV increased Rmb34.36mn in 2Q22, up 93.29% YoY or 49.54% QoQ. In 1H22, sales of the NEV-related business accounted for 29.7% of the total revenue (vs. 24.5% in 2021). CATG’s (excluding its subsidiaries) operating profit grew 70.9% YoY or 44.0% QoQ to Rmb86mn in 2Q22, hitting a new high. Meanwhile, the share in total earnings of investment income from associated companies or joint ventures decreased 22.3ppt YoY to 37.1%. We believe this highlights the company’s ability to develop its long-term independence.

    Refined management to enhance efficiency; attributable net margin rebounded in 2Q22. Against the backdrop of growing upstream cost pressure, the firm strengthened expense control to ensure earnings. It cut expenses relating to packaging, equipment and mold maintenance. In 2Q22, selling, G&A, and financial expense ratios dropped 0.30ppt, 1.31ppt, and 0.94ppt QoQ to 0.4%, 5.6%, and 1.1%, driving attributable net margin up 2.71ppt QoQ. In 2Q22, gross margin declined 1.94ppt QoQ to 20.0%, mainly due to new accounting method that switched some management expenses and adjustments of remunerations to manufacturing costs. The firm’s R&D expenses rose 24.9% YoY in 1H22, contributing to stronger R&D capability.

    Robust demand for NEV trim; continuing to acquire new clients and new projects. In 1H22, many of CATG’s clients put their projects into operation, including Li, Tesla, Vinfast, GWM, BAIC, Leapmotor and Neta. The firm obtained an assembly design and manufacturing project from Pixel-J for automobile door panels and instrument boards. Meanwhile, it became a design manufacturer of BMW’s exterior trim, automated equipment, and molds. As market demand grows stronger, the firm plans to build production bases in Dalian and Zhaoqing, and a R&D base in Munich. CATG previously developed intelligent cockpit and health management solutions by using Huawei’s operating system HarmonyOS. Now, it has signed strategic agreements with PATEO, FAWSN, and Bauhinia Taoli Technology to cooperate in smart cockpits. We expect the cooperation in low-carbon segments and smart cockpits to boost the firm’s growth, given its wide client coverage ranging from traditional luxury vehicle brands to NEV enterprises.

    Financials and valuation

    We leave our 2022 and 2023 earnings forecasts unchanged. The stock is trading at 12.7x 2022e and 10.5x 2023e P/E. We maintain OUTPERFORM. Considering strong growth momentum of the firm’s NEV-related business, we raise our TP by 20.0% to Rmb24.60, implying 17.0x 2022e and 14.0x 2023e P/E, offering 33.7% upside.

    Risks

    Disappointing operation and delivery of new clients’ project; results of intelligent cockpit R&D disappoint.