ZHEJIANG YINLUN MACHINERY CO. LTD.(002126):VETERAN OF THE THERMAL MANAGEMENT INDUSTRY GROWS WITH DEVELOPMENT OF RENEWABLES

类别:公司 机构:东吴证券国际经纪有限公司 研究员:Ruibin Chen 日期:2023-02-02

Investment Thesis

    Veteran in the thermal management industry for 40 years. Formerly known as “Tiantai Machinery Factory”, Zhejiang Yinlun (ZJYL) was established in 1958. ZJYL focuses on R&D, manufacture, and sales of heat exchangers among oil, water, gas and refrigerant, automotive air conditioning and other thermal management products, as well as exhaust aftertreatment related products. ZJYL covers a wide range of downstream clients: passenger vehicle clients (incl. renewables) include internationally renowned EV firms, CATL, NIO, XPEV and Li Auto; commercial vehicle non-road clients mainly include FAW Jiefang, Weichai, and Caterpillar; industrial and civil-used clients mainly include Gree and Midea.

    Electrification leads to significant increase of single car value, and domestic suppliers develop towards system assembly. Thermal management system is a collection of auto parts used to adjust the working temperature of parts and the environment temperature of the automobile cabin. Major auto parts include all kinds of pumps, valves, working fluid container, heat exchangers, compressors, pipelines, radiators, etc. Due to additional and upgrading components, the thermal management system of a single EV reaches Rmb7,000, three times as much as that of a traditional fossil fuel car. Thanks to the continuous growth of EV sales and high value of EV thermal management system, we expect the market size to reach Rmb100bn in 2025. Currently, Denso, Hanon, MAHLE and Valeo totally occupy more than 60% of the global market share, while domestic firms such as ZJYL, Sanhua, Tuopu and DunAn develop rapidly by catching industry opportunities to achieve business upgrade, business scope expansion, and the enhancement of systematically integrated products.

    Four core advantages of "technology, product, layout, client" help ZJYL to rapidly expand its EV thermal management business. In terms of R&D, ZJYL aims to build a global research system, focusing on EV thermal management. In terms of products, the company has a comprehensive product layout of "1+4+N" in the field of EV thermal management, and continuously makes efforts in the industrial and civil-used markets to achieve the advance layout of the third curve. In terms of global layout, adhering to the international development strategy, ZJYL continues to promote production and technical service platform in overseas markets, providing better localized services for global clients.

    In terms of clients, the company's EV thermal management business covers internationally-known electric vehicle enterprises, CATL, Geely, NIO, XPEV, Li Auto and other high-quality customers, fully enjoying the benefits of customer development.

    Earnings Forecast & Rating: We forecast ZJYL’s net profit to be RMB364/548/793mn, with EPS of RMB0.46/0.69/1.00, indicating P/E of 27.59x/18.34x/12.67x in 2022-2024.

    Given the rapid development of ZJYL’s EV thermal management business and continuous growth of industrial and civil-used business, we initiate with a “Buy” rating.

    Risks: Lower-than-expected sales of EV or development of new clients, fluctuation of raw material price.