Zhengyu Industry (603089): Small and Beautiful in the Automotive Aftermarket

Zhengyu Industry (603089): “Small and Beautiful” in the Automotive Aftermarket

Deep plowing the aftermarket of shock absorbers, covering all categories. Since the establishment of the company, the company has been deeply plowing the aftermarket of automotive suspension system shock absorbers. Over the past two decades, it has accumulated rich experience in design, manufacturing and sales, and its revenue from shock absorber businessThe ratio is 95%.

The company has many types of shock absorbers and covers a wide range, 杭州桑拿网 which can meet the needs of downstream customers for one-stop purchase of multi-type shock absorbers.

The company is the leading exporter of shock absorbers in the domestic aftermarket, and its products are exported to Europe and the United States, with overseas revenue accounting for 85%.

The number of car owners has grown steadily, and the aftermarket demand has risen.

Although the growth rate of new car sales has increased, global car ownership has continued to grow steadily.

We estimate that the global car ownership in 2020 is expected to exceed 1.5 billion vehicles, and the size of the automotive aftermarket is expected to exceed one trillion yuan.

Increasing car ownership will drive more and more after-sales demand.

Shock absorbers are high-loss core components. After-sales demand is stable. The replacement frequency of automotive shock absorbers is an important factor affecting their after-sales market demand. Generally, the replacement period of shock absorbers is 100,000 kilometers or 6-8 years.

The shock absorber is the core component of the automobile suspension system. For driving safety, the driving experience is relatively large, and it is always in a high loss state during work.

If damage occurs, it must be replaced in time, unless only one shock absorber is damaged, in order to maintain the smoothness of driving, all shock absorbers must be replaced.

We estimate that the auto shock absorber aftermarket space in 2021 is about 70 billion.

Supporting downstream high-quality customers, stable repayments, and abundant cash flow The company’s downstream customers are well-known auto parts manufacturers or buyers of the industry, and the repayments are stable.

The company’s aging period and the proportion of accounts receivable and bills receivable to operating income are gradually broken down by industry, with abundant cash flow and high income quality.

The production capacity is constantly breaking through, and the existing Zhengyu and Hongyu factories of the company that activated the performance growth engine are full. The insufficient production capacity has become the company’s development potential.

It is expected that the company’s new capacity of 6.5 million shock absorbers will be put into production in June 2020.

As new production capacity continues to climb, the company’s total production capacity will increase by 50%, and capacity growth will no longer exist.

In addition, the company added engine seals and rubber damping products through mergers and acquisitions in 2018, and tried to open new growth poles by expanding its product categories.

Earnings forecast and investment recommendations We expect the company’s EPS for 2019-2021 to be 0.

78 yuan, 0.

88 yuan, 0.

98 yuan, corresponding to 15 for PE.

6 times, 13.

9 times, 12.

5 times, the first coverage is given an “overweight” rating.

Risk warning: the risk of exchange rate fluctuations, the risk of raw material price fluctuations, and the risk of importing countries setting up trade barriers.