Source: Bread Finance
Xusheng shares recently announced that the company's issuance of "Sheng 21 convertible bonds" was listed on the Shanghai Stock Exchange on December 30, 2021. The company raised 1.35 billion yuan in convertible bonds, all of which were used to expand the production of new energy vehicle transmission system housings, battery system components and body parts.
In 2020, Xusheng Co., Ltd. raised more than 1 billion yuan in 2020 for projects such as precision casting and forging of new energy vehicles and lightweight parts manufacturing of automobiles. After the continuous expansion of production, it is worth noting whether the company can smoothly digest the production capacity.
It is worth mentioning that Tex has always been the largest customer of Xusheng shares, and from its listing in 2017 to the end of the first half of 2021, the company's revenue for Tesla accounted for more than 40%. But on the other hand, the company also faces potential risks such as single customer dependence and continuous decline in gross profit margins.
Since its listing, the stock price has experienced a "roller coaster" market performance is highly dependent on Tesla
Xusheng Co., Ltd. is mainly engaged in the research and development, production and sales of precision aluminum alloy auto parts and industrial parts, and the main application areas of the products include precision machining parts of the core systems such as new energy vehicle transmission systems, transmission systems, battery systems, suspension systems and so on.
Figure 1: Some products of Xusheng Shares
According to the prospectus of Xusheng shares, it reached a cooperative relationship with Tesla in 2013 and became a first-tier supplier of the latter. From 2014 to 2016, the company's sales revenue to Tesla accounted for 15.41%, 50.27% and 56.61% of the main business revenue, respectively.
The company landed on the A-share listing in 2017, because of the "Tesla" concept halo overhead, it was sought after by the market at the beginning of the listing, on the basis of a 44% increase on the first day of listing, and then gained 11 consecutive limits. Since then, due to the high valuation and the performance of some years has been less than expected, the stock price of Xusheng shares in the following years has been in an adjustment trend. As of the close of 2020, the company's stock price is close to the waist compared with the high point after the listing in 2017.
In 2019, the revenue of Xusheng shares was flat year-on-year, and the net profit attributable to the mother was negative year-on-year, an important reason was the year-on-year decline in revenue from Tesla.
Figure 2: Operating income, net profit attributable to the mother and year-on-year growth rate of Xusheng shares from 2017 to the first three quarters of 2021
Since 2020, the performance of Xusheng shares has begun to rebound significantly. In the first three quarters of 2021, the company achieved revenue and net profit attributable to the mother of 2.012 billion yuan and 332 million yuan respectively, an increase of 82.10% and 43.67% respectively year-on-year.
The company's growth benefited from the trend of electrification and lightweighting in the automotive industry and the increase in the use of aluminum alloy materials. According to the U.S. Department of Energy, every 10 percent drop in the weight of a car reduces its fuel consumption by 6 to 8 percent. Aluminum alloys, high-strength steels, magnesium alloys, carbon fibers, etc. are all lightweight materials.
Despite the resumption of growth, the company still has the risk of relying on a single customer due to the continued high proportion of Revenue from Tesla. According to the financial report, since its listing in 2017, the company's revenue from Tesla has reached the highest proportion in 2018, about 61.08%. Since then, although it has declined, it has remained above 40%.
Figure 3: Revenue and proportion of Xusheng shares from Tesla from 2017 to the end of the first half of 2021
Although the proportion of single customers is relatively high, although it may bring explosive growth to the company's performance in the short term, in the long run, there may be risks such as fluctuations in the customer's own operation, customer replacement of suppliers, and the company's bargaining power.
Fierce market competition superimposed on the price increase of aluminum ingots Gross profit margin continued to decline
The lower bargaining power of Xusheng shares is partly reflected in the gross profit margin that has continued to decline since its listing. The data shows that the gross profit margin of Xusheng shares has decreased from 44.43% in 2017 to 32.87% in 2020.
The company once said in the 2020 annual report that as more enterprises enter the new energy auto parts supply market, increasing the choice of downstream customers, so that the company will face a more fierce market competition situation in the future, the company's product pricing may be affected, such as product costs can not be reduced synchronously, the company's gross profit margin will decline with the price decline.
Figure 4: Gross profit margin, period expense ratio, and net profit margin of Xusheng shares from 2017 to the first three quarters of 2021
In the first three quarters of 2021, the gross profit margin of Xusheng shares further decreased to 26.96%. Among them, the company's gross profit margin in the third quarter fell to a new quarterly low of 23.23% since the listing.
The sharp decline in the company's gross profit margin in 2021 is also related to the increase in the price of aluminum ingots, the main raw material alloy. From 2018 to the first half of 2021, aluminum ingots accounted for more than 50% of the raw materials purchased by the company. In the first 10 months of this year, the price of aluminum ingots as a whole was in a continuous upward trend, reaching a new high in recent years in October. However, since the end of October, the price of aluminum ingots has been significantly adjusted, which may be conducive to the improvement of the gross profit margin of Xusheng shares in the future.
Figure 5: National aluminum ingot price trend since 2019
Successive expansion of production through additional issuance and convertible bonds may require attention to capacity digestion risks
In this issuance of convertible bonds, Xusheng shares raised 1.35 billion yuan, which will be used for high-performance aluminum alloy auto parts and automotive lightweight aluminum profile precision processing projects, and plans to invest 970 million yuan and 380 million yuan respectively.
Figure 6: The purpose of raising funds for the convertible bonds of Xusheng shares
High-performance aluminum alloy auto parts project plans a total investment of 1.142 billion yuan, the project construction period of 36 months, is planned to build new energy vehicle transmission system shell production capacity of 2.34 million pieces, new energy vehicle battery system components capacity of 570,000 pieces and new energy vehicle body parts capacity of 500,000 pieces; automotive lightweight aluminum profile precision processing project plans to add new energy vehicle transmission system housing production capacity of 620,000 pieces, new energy vehicle battery system components capacity of 950,000 pieces.
According to the company's estimates, the revenue after the two projects have fully reached production is 2.026 billion yuan, while the company's operating income in the first three quarters of 2021 is 2.012 billion yuan.
Xusheng co., Ltd. also raised more than 1 billion yuan in 2020 to expand production, mainly for new energy vehicle precision casting and forging projects (Phase II) and automobile lightweight parts manufacturing projects. At present, the above-mentioned fundraising projects are still in the construction period.
In addition, Xusheng announced in November 2021 that it will invest in the construction of automotive molds and core components research and development, manufacturing, production and processing projects in Zhejiang Nanxun Economic Development Zone, with a total investment of 2.5 billion yuan.
With the substantial expansion of production capacity, how to digest it may be a problem facing Xusheng shares in the future. In this regard, the company said that it currently has sufficient orders in hand, while expanding the scale of business cooperation with customers other than Tesla. According to the data, as of the end of the third quarter of 2021, the company's orders on hand were about 3.005 billion yuan.
Figure 7: Operating income and orders in hand of Xusheng shares from 2018 to the first three quarters of 2021
In terms of customer structure, the proportion of operating income from Tesla in the first three quarters of 2021 fell to less than 40%. However, among the company's top five customers, except for Tesla, the rest of the company's revenue accounted for less than 10%, and it may be necessary to further expand large customer resources in the future.