Huazhong Vehicle (6830.HK): Focus on automotive lightweight, seriously underestimated supplier of plastic steel

This article was first published on the WeChat public account: Hong Kong stocks. The content of the article belongs to the author's personal opinion and does not represent the position of Hexun.com. Investors should act accordingly, at their own risk.

In recent years, the research on the automotive industry in the market has focused on new energy vehicles and smart cars. However, the trend of lightweight vehicles is to a certain extent and has been ignored by the market. However, as an upgrade and change in the automotive industry, in addition to solving energy problems, there is also a core trend, that is, lightweight vehicles.

The light weight of a car means that the vehicle's maintenance quality is reduced as much as possible while ensuring the strength and safety performance of the car, thereby improving the power of the car, reducing fuel consumption, and reducing exhaust pollution. Experiments have shown that car quality is reduced by half and fuel consumption is reduced by nearly half. Due to the need for environmental protection and energy conservation, the lightweight of automobiles has become the trend of world automobile development.

At present, the demand for lightweight vehicles in the world is growing very fast. The main reasons are roughly three:

1) Pressure on energy conservation and emission reduction policies;

2) The pursuit of car safety and maneuverability;

3) Increased cruising range of electric vehicles.

In 2016, China launched the “National Standard IV” for exhaust emissions, requiring that from 2016 to 2020, the average fuel consumption of domestic passenger vehicles should be reduced to 5L/100km, with an annual drop of 0.5L/100km. In view of the fact that the average fuel consumption of domestic passenger cars in 2015 was 7.66L/100km, energy conservation and consumption reduction are still the primary targets for all future vehicle research and development.

Research shows that about 75% of fuel consumption is related to vehicle weight. For every 10% reduction in vehicle quality, fuel consumption is reduced by 8% and emissions are reduced by 4%. Therefore, under the rapid development of China's auto industry, especially the development of new energy vehicles, on the one hand, we need innovation from the provision of energy. It is called “open source”, but it is also a very important proposition in the light weight of automobiles. The so-called "throttle". How to effectively "open source and reduce expenditure" is the key target of the research in the automotive industry.

Automobile lightweight: it is a general trend to replace steel with plastic

At present, the international mainstream car lightweight implementation path is to use engineering plastics, magnesium-aluminum alloy, carbon fiber and other alternative materials to achieve weight reduction. At present, the above lightweight materials have the following characteristics:

1) Automotive steel has entered a mature stage, and only high-strength steel has structural opportunities in the future;

2) With plastics and aluminum alloys, it has a good weight-reducing effect. Now it has become the material of choice for lightweight, and the models that have been applied have begun to slowly explore the low-end models from high-end models;

3) Although the magnesium alloy has better light weight effect, but the cost is high, and the deep processing process is difficult, and it is at the initial stage of introduction;

4) Carbon fiber composite materials are more expensive, mainly used in high-end models and racing fields, and are expected to be applied in batches later.

Looking at the whole, the current generation of plastics should be in the maturity stage.

Plastic-based steel technology, mainly using PP (polypropylene), PC (polycarbonate) and ABS (acrylonitrile-butadiene-styrene copolymer) and other engineering plastics, replacing traditional steel, as a body parts, making The weight of the vehicle is reduced to 1/4-1/8 of the original weight, which makes the car lighter and reduces the fuel consumption of the car.

The proportion of engineering plastics is generally 0.9-1.5, and the specific gravity of fiber-reinforced composites will not exceed 2, while in metal materials, the specific gravity of A3 steel is 7.6, that of brass is 8.4, and that of aluminum is 2.7. In addition, the plastic molding is easy, and the components with complicated shapes such as the center console of the automobile can be injection molded at one time. Another point is that the toughness of plastics is strong, so if many parts of the car interior are impacted, his elastic deformation characteristics absorb a large amount of collision energy, which can protect the vehicle and passengers in the event of a strong impact.

At present, many international brands are beginning to use more and more plastic-based steel technology.

I remember when I went to investigate Geely Automobile two months ago, after entering the exhibition hall, Geely’s salesman first introduced to investors that they were the latest lightweight polymer parts, which can be seen in this field. The popularity of plastic-made steel has just begun.

Having said that so many cars are lightweight, in fact, in the Hong Kong stock market, there is a very authentic target, Huazhong Vehicle (6830.HK), a component manufacturer specializing in automotive lightweight business. He is the protagonist of today.

Huazhong Car: a potential supplier of plastic steel

Established in 1993, Huazhong Vehicle is the only parts supplier in the Hong Kong stock market that specializes in automotive lightweight business. Its main business is automotive interior and exterior structural and decorative parts, large and medium-sized automobile molds. The company has a broad development potential with plastic-generation steel products, and the company has also begun to strategically lay the field of automatic driving.

Huazhong Car, in recent years in the internal and external structural and decorative parts, focus on promoting the "plastic-to-steel" product strategy, and successively launched the automobile front-end frame, bottom guard plate, etc. to replace the steel star products, and successfully supply joint ventures such as FAW-Volkswagen and Geely Automobile. And the independent brand automakers, through this layout, the gross profit margin of this part of the product is as high as 30% or more.

In terms of independent brands, the company is the first supplier of plastics and steel for the front-end framework of Geely Automobile and Guangzhou Automobile Chuanqi. In terms of joint venture brand, Huazhong is a supplier of plastics and steel for the front-end frame of Shanghai Volkswagen and FAW Audi. Develop molds for supporting customers.

In addition, the company itself is also developing the "plastic-made steel" bottom plate products. In the past few years, it has invested 30 million to independently develop a fully automatic production line of "plastic-made steel" bottom plate products, and obtained multiple hosts. The factory has more than 3 million sets of orders.

At present, after several years of development, the company has 17 production bases across the country, mainly in the vicinity of customers, manufacturing and delivering products for them. There are also three factories under construction in Tianjin, Qingdao and Wuhan.

In terms of major customers, the Group has established stable business relationships with six of the top ten automakers in China, including SAIC Group 600104, stock bar, FAW-Volkswagen, Changan Automobile 000625, shares, BAIC Motor, GAC Group 601238, shares and Chery. The Group basically receives about 70% of its revenue from these six major customers each year, and its business relationship is stable, so the company's performance growth has remained very good.

As of June 2017, the total amount of safety order agreements that the company has received in 2017-2021 exceeds 10 billion yuan, which will bring very good performance growth for the company in the next 4 years.

According to the company's semi-annual report, in the first half of 2017, thanks to the new customers (mainly independent brand automakers) joining and improving operational efficiency, the company's various businesses grew steadily, achieving revenue of 831 million, an increase of 3.00% year-on-year; gross profit margin It was 28.2%, up 1.5 percentage points from 26.7% in the same period of last year;

Net profit was 55 million, a substantial increase of 52.80% year-on-year.

Among them, the internal and external structure of automotive and decorative parts revenue was 629 million, accounting for 75.8% of total revenue, gross profit margin increased from 30.3% in the same period last year to 31.9%; mold and tool revenue was 45 million, accounting for 5.4% of total revenue, gross profit margin increased by 1.5. Percentage points to 17.5%.

From the data in recent years, the company actively promotes the strategy of plastic-generation steel, in line with the industry's light-weight development needs, revenue growth, from 1.17 billion in 2012 to 1.752 billion in 2016.

At the same time, with the supply of high value-added products such as plastic and steel to the major OEMs, the gross profit margin of the company's products increased from 20.90% in 2012 to 27.53% in 2016. This growth rate is very impressive.

Seeing the steady growth of revenue and the improvement of gross profit, we must think of the maturity of the business model and the expansion of the market. This continued high gross profit margin indicates that the strategy of “reforming steel by plastic” has laid the foundation for the company to explode.

The investment period is gradually passing, the production capacity continues to expand, and the future performance growth can be expected.

In fact, if you open the company's financial report, you will find that in the past few years, in addition to sales growth, profit growth is not high, mainly because the company has been building factories to expand production capacity in the past few years. In a few years, the company has already started production. At the 17 production bases, there are currently 3 new plants in Tianjin, Qingdao and Hangzhou Bay Hualuote, which will be completed and put into production, and have obtained large orders such as sunshade curtains and “plastic-made steel” bottom guard products, and the future is expected. After a few years of performance, growth will be very good.

Hangzhou Bay Hualuote Factory is invested by Huazhong, Germany Roekona and Zoeppritex, with a total investment of 150 million yuan and a plant construction of 18,000 square meters. It is expected to be officially put into operation in October 2017.

At present, Hualuote Factory has built the first special production line of domestically produced sunshade fabrics, including car roof fabrics, column fabrics and sunshade curtains. It will supply skylights, columns and canopy assembly manufacturers of first-line automobile OEMs. Customers include BMW, Mercedes-Benz, FAW Volkswagen and more. Compared with the original products, the profit rate of new products can reach more than 30%. The joint venture partner of the plant is the original supplier of brands such as Mercedes-Benz, Audi and Volkswagen, and has market priority in the industry.

The Tianjin and Qingdao factories, which started construction in January 2017, will focus on the development of “plastic-made steel” parts and components, and serve customers such as FAW-Volkswagen and Changan Ford, and are expected to start production in early 2018.

At present, the company has invested 30 million to independently develop a fully automatic production line of “plastic-made steel” bottom guard plate products, and has also obtained the following orders:

1) Qingdao factory: a main engine pillar protection project, with an 8-year life cycle of more than 2 million sets;

2) Tianjin factory: ABC column, bottom guard plate, pillar guard plate, under-door guard plate, spoiler and other projects of a new model of a main engine factory, with annual sales exceeding 200 million RMB;

3) Changsha Plant (16 years production): The front frame and bottom shield project of a main engine factory, with an annual output value of about 220,000 sets.

In addition to these new capacity and orders, in the car networking products business, the company began to supply a new energy vehicle communication interconnect tbox in August 2017, expected to supply 10,000 sets in 2017, expected to supply 30 in the next three years. Million sets. It is expected that the huge value of the company's data platform will gradually emerge in the future.

to sum up

Huazhong Car is a very famous company in Ningbo, and it is also a direct supplier of almost all major brands in China. After the company's listing in Hong Kong in 2012, after the conversion of the bulls and bears in 2015, the stock price barely rose.

However, after the investment in the expansion of the Huazhong car, the fundamentals have undergone fundamental changes. The company's performance changes are very obvious.

In fact, through the comparison of performance, we can find that the company's basic carry-over in the second half of the year will be stronger than that in the first half of the year. In view of the fact that the company's performance in the first half of 2017 has increased by 50% compared with last year, it is expected that the annual growth rate will be at least 50%. Coupled with the company's large investment period has passed, the performance of the next three to five years will maintain a high growth.

Although the company is a car stock that can benefit from the lightweight concept, but the current stock price of 0.86 Hong Kong dollars, the market is still not aware of the fundamental changes, so it is still in the bottom section.

Considering that the plastic-made steel products will meet the light-weight trend of automobiles, and the production capacity will be put into production in this and next two years, and the orders for large-value and high-value-added products will be locked in advance. It is conservatively estimated that the net profit for 2017 will reach 130 million yuan or more. Corresponding to the latest closing price of 12 times PE, compared with the industry's current 17 times average valuation, the company is still very underestimated, and next year's performance growth is still expected, it is worthy of attention.

【About the Author】

Coastline | GLONGE· Columnists have long been engaged in automotive and upper and lower industry chain research, love cycle, love and pay attention to the automotive industry. [Essential recommendation] Great Wall Motor 601633, stock bar (2333.HK) final battle: marching into the sea - the decisive battle of the Civil War, return to the main business of Harmony (3836.HK) will be a double stock? The policy is promising, BYD 002594, how far can the stock (1211.HK) go?