Can Zhengqiang shares become the "small strong" of the auto zero sector?

Recently, the auto parts sector has performed well in the secondary market, Farah Electronics, Desay SV, Huayang Group, Jingquanhua, Zhaowei Electromechanical, etc. have risen sharply, and the first batch of listed companies on the Beijing Stock Exchange, Tongxin Transmission and Dadi Electric, which also rose sharply on the opening day of the market, with this shareholder wind, an auto parts company called Zhengqiang Shares landed on the ChiNext board of A shares on November 22, 2021.

Zhengqiang shares issued 20 million shares, the issue price was 17.88 yuan, raised 358 million yuan, after deducting the issuance fee, the net amount of funds raised was 290 million yuan, the opening price on the day of listing was 49.89 yuan, up 179% from the issue price; the closing price was 52.42 yuan, up 193% from the issue price.

On November 23, 2021, the day after the listing, Zhengqiang shares continued to rise strongly, closing at 57.22 yuan per share, an increase of 9.16%, and a market value of 4.578 billion yuan.

One of the highlights of Zhengqiang shares is that as the substitution effect of new energy vehicles on traditional fuel vehicles accelerates, whether upstream parts manufacturers can obtain higher valuations in the secondary market, and even can be equal to lithium batteries.

The main business of Zhengqiang Co., Ltd. is the research and development, production and sales of automotive cross shaft universal joint assembly, section fork and its related parts, the main products are cross shaft universal joint assembly, section fork and cross shaft, of which the cross shaft universal joint assembly accounted for 65.35% of revenue in the first half of 2021, and the revenue of cross fork and cross shaft accounted for 16.30% and 16.90% respectively.

This enterprise is located in Xiaoshan, Hangzhou, Zhejiang, from the perspective of equity structure, the family characteristics are obvious, which belongs to the typical "Zhejiang business concept".

Before the IPO, Zhengqiang Holdings was the controlling shareholder of the issuer and directly held 51.00% of the equity of the issuer. Xu Zhengqing, Fu Yun and Fu Qiang are the actual controllers of the issuer. Xu Zhengqing and Fu Yun are husband and wife, and Fu Yun and Fu Qiang are brothers and sisters. Xu Zhenghuan and Xu Zhenbiao were Xu Zhengqing's older brothers, and Fu Jianquan was the older brother of Fu Qiang's spouse.

After the IPO, the actual controllers of the company, Xu Zhengqing, Fu Yun and Fu Qiang, controlled 68.12% of the shares of Zhengqiang Holdings, which was still in an absolute controlling position. Among them, Zhengqiang Holdings holds 38.25% of the shares, Xu Zhengqing holds 15.3% of the shares, and Fu Qiang holds 10.2%. The specific shareholding structure is shown in the following table:

For any auto parts company, whether the technology field to build a moat is the primary factor that needs to be considered, if the technology is leading, then there is no market, no performance, no stock price leap, this logic is a good ruler for valuation.

In terms of cross-shaft universal joint assembly products, the key technical indicators of Zhengqiang Co., Ltd. in terms of durability, precision and performance are higher than the industry standard, and the import substitution of similar parts of some joint venture or foreign brand vehicles is realized, which has technical advantages and can adapt to the current technical requirements of new energy vehicles.

In terms of product accuracy, the cross shaft journal tolerance produced by Zhengqiang Co., Ltd. (in the case of the nominal diameter of the cross shaft journal is less than 18mm) can reach 8μm, which is 27.27% smaller than the maximum tolerance allowed by the industry standard of no more than 11μm;

In addition, the distance tolerance between the two end faces of the cross shaft produced by the company (in the case of the distance between the two end faces of the cross shaft in the range of 80mm-120mm) can reach 27μm, which is 50% smaller than the maximum tolerance allowed by the industry standard not more than 54μm.

In terms of product performance, the surface hardness of the cross shaft journal produced by the company can reach 59-63 HRC (hardness measurement unit), which is about 33.33% narrower than the industry standard 58-64 HRC (hardness measurement unit).

In terms of product durability, the number of torsional fatigue life cycles of the cross shaft gimbal assembly produced by the company can reach 300,000 times, which is 50% higher than the industry standard of not less than 200,000 times; the wear life of the cross shaft universal joint assembly can reach 120 hours, which is 50% higher than the industry standard of not less than 80 hours.

Zhengqiang shares have 26 products have been rated as provincial industrial new products, which is also an indirect indication that the company's products still have a certain competitiveness in the industry.

Having said that, Zhengqiang shares are not considered to be the leaders in the industry, but the head is a relatively old listed company - Universal Qianchao (000559.SZ), its leading products are also universal joints, automotive wheel grain units, constant speed drive shafts, drive shafts and other parts and components products, for the cross shaft universal joint assembly market industry leading enterprises.

From the perspective of shipments in 2018-2020 (as shown in the table below), there is still a certain degree of gap between Zhengqiang shares and the Wanxiang qian tide at the head.

However, looking at the performance of the secondary market, The positive strong shares are more courageous than the performance of Wanxiang Qianchao, which was listed on the main board of the Shenzhen Stock Exchange in 1994, and the issue price per share at the time of listing was 3.80 yuan, and now the closing price on November 23 is 6.42 yuan / share, the market value is 21.210 billion, while the issue price of Zhengqiang shares is 17.88 yuan, and it closes at 57.22 yuan / share on November 23, with an increase of 9.16% and a market value of 4.578 billion yuan.

In terms of customers, Zhengqiang co., Ltd. has established a solid cooperative relationship with well-known auto parts suppliers at home and abroad such as Bosch Huayu, Jimingmei (GMB), Jiangsu Nanyang Netmore Auto Parts Co., Ltd., Dana (DANA), MERITOR, Chengdu Tianxing Shantian Auto Parts Co., Ltd. (supplier of Honda brand cars), Dongfeng Motor Chassis System Co., Ltd., Nexteer and other well-known auto parts suppliers at home and abroad. It has entered the supplier system of Yifa (IFA) and Shanghai Natiefu Driveline Co., Ltd.

In the second half of 2020, it began to sell products to Yifa (IFA) and applied them to Mercedes-Benz brand vehicles, and developed a high-quality customer, Shanghai Natiefu Transmission System Co., Ltd., laying the foundation for the issuer to further develop and sell new products to new customers in the future.

The company's products have been used in Xiaopeng, WM, BYD, SAIC Roewe, SAIC-GM-Wuling, SAIC MG, GAC Eian, Geely, BAIC, GM, Honda, Hyundai, Kia, Great Wall, Dongfeng and other brands.

By combing the company's customer structure, we found that in fact, the role of Zhengqiang shares is the supplier of auto parts manufacturers, and does not directly have a relationship with the automaker, which is colloquially "auto parts parts".

In terms of performance, the prospectus shows that the revenue of Zhengqiang shares in 2018, 2019 and 2020 was 320 million, 305 million and 282 million yuan, respectively; the net profit was 56.2955 million yuan, 51.8133 million yuan and 52.9186 million yuan, respectively.

In the first half of 2021, Zhengqiang Co., Ltd.'s revenue was 160 million yuan and net profit was 25.0651 million yuan.

It can be seen that the performance of Zhengqiang shares in recent years is not beautiful, and the revenue and net profit in 2020 have declined sharply compared with 2018. Revenue in 2019 decreased by 4.50% year-on-year in 2018 and fell by 7.55% again in 2020, mainly due to the decline in automobile production and sales, the new crown epidemic, and the annual decline in the price of domestic auto parts.

Zhengqiang officially expects its operating income for the entire 2021 to be 328 million yuan to 344 million yuan, a year-on-year change of 16.27% to 21.94%; net profit attributable to the owners of the parent company of 50.50 million yuan to 54.50 million yuan, a year-on-year change ratio of -4.57% to 2.99%.

In terms of gross profit margin, the gross profit margin of the company's main business products in the first half of 2018-2021 was 30.16%, 28.87%, 30.87% and 26.83%, respectively, with some ups and downs. In 2019 and January to June 2021, the gross profit margin of the main business products decreased, mainly due to the decline in product sales prices, rising costs and other factors, and the specific gross profit margin trend is shown in the following table:

However, in horizontal comparison, Zhengqiang shares officially said that the company's gross profit margin level is still higher than that of comparable listed companies in the same industry.

The funds raised in this IPO will be used for the expansion and construction of automotive steering and transmission system parts, the upgrading of technology centers, and the construction of information technology. After the investment project of the raised funds reaches production, Zhengqiang will add an annual output of 14.45 million cross shaft universal joint assemblies and 11 million pieces of fork production capacity. If these production capacities can be successfully landed and successfully sold, then it is bound to be a shot in the arm for performance improvement.

If this wind in the auto zero sector can be blown for a long time this time, can the fledgling Zhengqiang shares get a piece of the pie? Worth looking forward to.

This article originated from Caihua Network