Automotive suspension, a general term for the force transfer device that connects the frame to the axle, is the core of the car's comfort and handling.
The core difference between air suspension and traditional steel suspension is that it is upgraded from a metal spring to an air spring, and electronic components such as controller ECUs and sensors are added to make the car driving comfort and control higher.
Pictured: Automotive suspension system
Source: Tianfeng Securities
Air suspension due to the high cost, in the past often used in the more than 600,000 yuan in luxury brands in the high-end models, with the rise of krypton 001, Weilai ET7 and other domestic new energy vehicles, the air suspension sinks to less than 350,000 yuan model options.
Judging from the recent growth of participants in the industrial chain:
Baolong Technology - the third quarter of 2021, the realization of revenue of 2.839 billion yuan, an increase of 22.86% over the previous period, net profit of 224 million yuan, an increase of 59.66%.
Tuopu Group - the third quarter of 2021, achieved revenue of 7.823 billion yuan, an increase of 81.14% over the previous period, and net profit of 753 million yuan, an increase of 94.44% year-on-year.
Tianrun Industry - In the third quarter of 2021, it achieved revenue of 4.025 billion yuan, an increase of 24.83% over the previous period; net profit was 444 million yuan, an increase of 30.21% year-on-year.
Zhongding Shares - the third quarter of 2021, achieved revenue of 9.340 billion yuan, an increase of 19.72% over the previous period, and net profit of 818 million yuan, an increase of 171.17% year-on-year.
Judging from the expectations of the institution for the prosperity of the industrial chain:
Chart: Wind agencies unanimously expect growth and prosperity
Source: Tajian Research
All aspects of the air suspension industry chain, including:
Upstream - parts suppliers, air springs, shock absorbers, guide mechanisms, electronic control ECUs, sensors and other components, representing the enterprise Baolong Technology, Zhongding shares, etc.
Midstream - for the automotive system assembly, mainly for overseas OEM leaders, representative enterprises include mainland Germany, AMK (Zhongding share acquisition), Tuopu Group, Tianrun Industry and so on.
Downstream - automakers, mainly high-end passenger cars and dangerous chemical commercial vehicles, representative enterprises are Weilai, Tesla, Mercedes-Benz, Daimler and so on.
Figure: Industrial chain
See here, there are a few questions worth thinking about:
1) Air suspension this subdivision track, how much market space is there in the future?
2) From the perspective of key operating data, what kind of business layout can be more competitive in the medium and long term?
This report will be updated to the industrial chain map
(I)
The automotive suspension system is responsible for connecting the car body, chassis and wheels, transmitting the forces and torques that interact between the three, and buffering the vibrations caused by uneven ground to ensure driving comfort.
Its main purpose is to coordinate the comfort of the ride and the driving maneuverability.
The automotive suspension, including elastic components, shock absorbers, force transmission devices and other three parts, respectively, play a buffer, vibration damping and force transmission role. According to the material of its elastic elements, it can be divided into traditional steel spring suspension and air suspension mainly rubber material.
Traditional suspension, at the factory, the softness and hardness of the spring and shock absorber are set:
The tougher the suspension, the stronger the support for the whole vehicle, reducing the roll when cornering, and can give the driver a stronger "sense of the road"; the softer the suspension, the better the cushioning effect on the bumpy road, and the better the driving comfort.
It can be seen that the handling and comfort of a car are inherent contradictions. Manufacturers must set their driving style before the car leaves the factory, such as a certain owner playing business comfort, and a certain owner playing sports control.
So, the manufacturers began to study: is there an ideal suspension system, "in different road surfaces and different use cases, the softness and hardness are different"?
Air suspension was born in search of a solution that balances handling and comfort.
In 1954, General Motors of the United States proposed the concept of active suspension, through the mechanical air valve, the air into the air spring, to achieve chassis lift control, adjust the height of the car chassis to achieve the adjustment of driving comfort.
In the 1980s, the rapid development of electronic components, the reliability and life of ECUs and sensors increased, and the technological advancement of air springs and control elements promoted the development of air suspension.
In 1984, mainland Germany developed the first electronically controlled air suspension system for Lincoln cars, which has an ECU control unit, sensors, fault diagnosis interfaces, etc.
At this point, the air suspension is no longer a traditional mechanical part, but a system with intelligent adjustment function.
It works by:
The ECU receives input information from various sensors, CAN buses and drivers (such as sport mode, vehicle height selection), and after information processing, controls the filling and deflation of the airbag and the damping of the hydraulic shock absorber, and the whole process is controlled within milliseconds.
However, the air suspension is still low (1.5%). In the era of fuel vehicles, only luxury cars will be configured, such as Mercedes-Benz S-Class, BMW 7 Series, Audi A8 and other models.
In 2021, many new energy vehicles such as Extreme Kr 001, Weilai ET7, and Ideal X01 began to be equipped with air suspension, and the price of the model dropped to less than 350,000 yuan.
(2)
First of all, let's have a general understanding of each company from the perspective of revenue volume and business structure.
Taking 2020 revenue as an example, Zhongding Co., Ltd. (11.548 billion yuan) > Tuopu Group (6.511 billion yuan) > Tianrun Industry (4.428 billion yuan) > Baolong Technology (3.331 billion yuan).
From the perspective of air suspension revenue, Zhongding Co., Ltd. (779 million yuan) > Tianrun Industry (0.58 billion yuan) > Baolong Technology (0.4 billion yuan) > Tuopu Group (unrealized revenue)
First, Zhongding shares - around the layout of the field of special rubber, in 2020, the cooling pipeline system, sealing system, intelligent chassis (lightweight), intelligent chassis (air suspension) the four main businesses accounted for 26.26%, 24.16%, 23.07%, 6.75%.
In 2020, air suspension revenue was 779 million yuan, accounting for 6.75%, all from the revenue of the acquired German AMG overseas business. AMK is a major global supplier of air suspension systems for Tesla, Mercedes-Benz, BMW and other OEMs. AMK currently has no domestic business, and has received weilai and BAIC lantu fixed points.
Chart: Revenue structure (unit: 100 million yuan)
From a geographical point of view, nearly 60% of its revenue comes from overseas, 40% from China, mainly due to its multiple overseas mergers and acquisitions, including German AMG (air suspension), German WEGU (shock absorption and noise reduction), German TRF (thermal management) and so on.
Second, Baolong Technology - the main products include exhaust system pipe fittings, valves, automotive tire pressure monitoring system (TPMS), balance blocks, automotive structural parts, sensors and millimeter wave radar.
TPMS is its pillar business, accounting for 34% of operating income, while the proportion of operating income of automotive metal parts and valves fell to 29% and 18%.
In the air suspension business, the core technology is air springs, and in 2020, air springs and shock absorbers will be fixed in NIO ET7 models (passenger cars), and mass production will be realized at the end of 2021, entering a larger track from the original business.
3. Tuopu Group - starting with shock absorption products, it has gradually expanded into the fields of interior, lightweight and automotive electronics.
In 2020, the three major businesses of shock absorption products, interior parts and lightweight (forged aluminum control arms) accounted for 39.32%, 34.16% and 20.44% respectively.
On November 24, 2021, its "Air Suspension System Part I" built in Ningbo began to enter the field of air suspension. The plant is expected to be completed in mid-2022, with an annual production capacity of 2 million pieces and 500,000 vehicles after completion.
Fourth, Tianrun Industry - In 2020, the crankshaft and blank, connecting rod and air suspension business accounted for 72.25%, 22.74%, 7.66% and 1.31% respectively.
Tianrun Industrial's air suspension is mainly based on the commercial vehicle air suspension market. In 2020, the newly produced and licensed dangerous goods transport vehicles of more than 12 tons in China, as well as the air suspension of three-axle rail plate and barn grid semi-trailer, drove the business to achieve revenue of 58 million yuan.
Overall, air suspension is early in the domestic passenger car field: the larger volume of Zhongding shares air suspension revenue is also all from overseas mergers and acquisitions, Tianrun Industrial's empty suspension income is all from the commercial vehicle field, Baolong Technology has achieved a small part of the revenue (mainly commercial vehicles), and Tuopu Group's air suspension business is expected to bring revenue in the second half of 2022.
(III)
Next, we'll put together revenue and profit growth in recent quarters to sense the growth trend:
First, the growth rate of income
Chart: Revenue growth rate (unit: %)
Overall, auto parts companies excluded the impact of mergers and acquisitions, and their performance was mainly driven by the sales volume of downstream vehicle customers:
Tianrun Industry, the first half of 2018 growth rate is relatively fast, is affected by the control of overloading, diesel truck pollution and other policies, heavy truck market space, replacement demand has increased, the domestic heavy truck market has accumulated sales of 671,800 vehicles, up 15.1% from 583,700 vehicles in the same period last year. The traditional business of Tianrun crankshaft is in the field of heavy-duty truck crankshafts, driven by the strong demand in the heavy-duty truck market, its heavy-duty engine crankshaft products are full of orders, bringing revenue growth.
Baolong Technology, with a rapid revenue growth rate in 2019, is a new overseas merger company PEX (automotive sensor), Polyfu Electronics Overseas (TMPS), MMS (70% of the equity of austrian intelligent equipment company MMS), the impact amount is about 630 million yuan, excluding the merger after its revenue is basically flat compared with 2018 slightly increased (+2%).
2) Growth rate of net profit attributable to the mother
Chart: Growth rate of net profit attributable to the mother (unit: %)
Tuopu Group, the net profit in 2019 fell significantly, mainly dragged down by the sharp decline in sales of core customers Geely Automobile and FAW.
Geely was the core customer of Tuopu Group at that time, accounting for about 35% to 40% of revenue, mainly purchasing its rubber shock absorption and sound insulation products, due to the serious decline in Geely's sales in 2019, dragging down its revenue growth. At the same time, due to the slow sale of products, inventory price losses need to be recorded, resulting in a decline in net profit. In 2020, Tuopu achieved a customer structure upgrade, and according to Tianfeng Securities' forecast, Tesla's proportion in 2021 increased by 30%.
Zhongding shares, 2021 Q1 net profit increased significantly, mainly due to the sale of equity, its sale of German AMB Enterprise Industrial Business and Green Motion SA, equity brought 150 million yuan investment income.
Green Motion SA, one of Switzerland's major charging pile operators, has been in operating losses for the past three years and sold the company for cash flow management reasons.
Baolong Technology, in 2019, revenue increased significantly, but net profit declined year-on-year, mainly due to overseas mergers and acquisitions. In January 2019, Baofu Electronics consolidated that the performance of overseas markets was less than expected, and the tariffs increased due to the large environmental impact, resulting in a net profit loss of 92 million yuan for the whole year, accounting for 68% of the net profit of the year.
(Wanton)
Next, let's take it apart to see the growth performance of each company in the past quarter:
I. Zhongding Shares - In the first three quarters of 2021, the revenue was 9.34 billion yuan, an increase of 19.7% year-on-year; the net profit attributable to the mother was 818 million yuan, an increase of 171.17% year-on-year.
1) From the perspective of single-quarter growth rate:
In the single quarter of Q3 2021, the revenue was 2.96 billion yuan, down 3.2% year-on-year and 7.2% month-on-month; and the net profit attributable to the mother was 227 million yuan, an increase of 25.9% year-on-year and 35.9% month-on-month.
Due to the large number of overseas mergers and acquisitions, the top ten customers of Zhongding are basically overseas OEMs (Volkswagen, GM, Daimler, Volvo, Ford, etc.), and overseas revenue accounts for about 69%, and its revenue growth rate is driven by overseas vehicle sales.
In the third quarter, overseas vehicle sales were greatly affected by chips and raw materials, resulting in a decline in single-quarter performance.
Chart: Revenue, net profit and growth in the last 8 quarters
Chart: Quarterly revenue (left), Net profit attributable to the parent (right) (unit: 100 million yuan)
2) Looking back at the growth rate of several quarters of history:
Its income in the past three years has been relatively stable, but its profits have fluctuated greatly, mainly due to the fact that the assets of overseas mergers and acquisitions are still in the process of resource integration, and some overseas companies are still in a state of loss.
Second, Baolong Technology - in the first three quarters of 2021, the revenue was 2.839 billion yuan, an increase of 22.86% over the previous period; the net profit was 224 million yuan, an increase of 59.66% year-on-year.
In the single quarter of Q3 2021, the revenue was 973 million yuan, an increase of 92% year-on-year, and the net profit attributable to the mother was 112 million yuan, an increase of 177% year-on-year.
Revenue growth was driven by growth in sensors such as exhaust pipe fittings and TPMS, with faster net profit growth mainly due to a reduction in losses from Baofu Electronics and improved earnings from its acquisition of DILL, while its subsidiary DILL in the United States received a non-recurring profit and loss of $0.8 billion from the sale of assets.
From the end of 2020, Baolong Technology's net profit began to repair, mainly: 1) the loss of overseas subsidiaries shrank; 2) from 2020, domestic commercial vehicles were forced to install TMPS tire pressure monitoring products, and the profit margin of commercial vehicleS TMPS was higher than that of passenger car TPMS, driving the profitability of its core business TMPS to rebound.
Third, Tuopu Group - in the first three quarters of 2021, the operating income was 7.823 billion yuan, an increase of 81.14% year-on-year, and the net profit attributable to the mother was 753 million yuan, +94.44% year-on-year.
In the single quarter of Q3 2021, the revenue was 2.906 billion yuan, an increase of 65.44% year-on-year and 16.71% month-on-month; the net profit attributable to the mother was 294 million yuan, an increase of 71.26% year-on-year, and an increase of 37.4% month-on-month.
Benefiting from the development of product lines and Tesla-based new energy vehicle companies, the sales volume of supporting models of core customers such as Geely and GM has increased, and the performance has increased significantly.
The high growth of performance occurred in Q3 2020, mainly driven by the optimization of customer structure.
Its new customer Tesla, the domestic Model Y volume, led to a rebound in performance. According to Tianfeng Securities data, in 2020, Tuopu Group's revenue from Tesla is 1.1 billion yuan, contributing 18% of revenue; in 2021, Tuopu Group's revenue from Tesla is expected to be 2.6 billion yuan, contributing 30% of revenue.
Fourth, Tianrun Industry - in the first three quarters of 2021, the revenue was 4.025 billion yuan, an increase of 24.8% year-on-year; the net profit attributable to the mother was 444 million yuan, an increase of 30.2% year-on-year.
In the single quarter of Q3 2021, the revenue was 1.002 billion yuan, down 17.9% year-on-year and 30.9% month-on-month; the net profit attributable to the mother was 132 million yuan, down 2.4% year-on-year and 5.2% month-on-month. The pressure on the third quarter performance was mainly due to the sluggish demand in the commercial vehicle industry.
From the third quarter of 2020 to the first quarter of 2021, the performance growth rate is relatively fast, mainly driven by the sales of downstream commercial vehicles. In 2020, due to the increase in infrastructure, over-limit and overload control, and the upgrading of commercial vehicles in China VI, the production and sales of commercial vehicles increased by 20.0% and 18.7% respectively year-on-year.
(Wu)
After comparing the growth, let's look at the changes in profit margins and expense ratios.
First, the net interest rate
Chart: Net Interest Rate (in %)
Auto parts companies, due to heavy assets, their profitability is magnified by the prosperity of the vehicle industry:
Tuopu Group's net profit margin has decreased significantly from Q4 2018, mainly due to:
1) Depreciation and amortization eroded profits, since 2017, it has added new factory capacity in Linhai/Baoji/Xiangtan, Zhejiang, and the fixed assets have been consolidated in large quantities, from about 1.33 billion at the end of 2016 to 3.941 billion in 2019, and depreciation has increased significantly;
2) Decline in revenue scale, since the second half of 2018, the passenger car market has continued to decline, and its main customers such as Geely/SAIC-GM have shown a decline in sales that exceeded the industry decline, resulting in a double-digit decline in its revenue in the first two quarters of 2019.
The situation of Baolong Technology and Zhongding Shares is similar, and the net profit from 2019 to 2020 has declined more, mainly due to the proportion of two overseas businesses, which are dragged down by overseas mergers and acquisitions.
On the one hand, the acquisition generated a large number of related expenses, (Baolong Technology added nearly 100 million new expenses, accounting for 65% of net profit), on the other hand, overseas companies affected by the industry in 2019 performance did not meet expectations. A twofold factor led to a significant decline in net interest rates.
The recovery in Baolong Technology's net profit margin in the third quarter of 2021 was driven by the narrowing of the losses of overseas subsidiaries, the improvement of the gross profit margin of the core business TMPS valves, and the sale of SNT equity by the North American subsidiary DILL, achieving a net investment income of nearly 0.9 billion yuan.
Zhongding's net profit margin rebounded in the third quarter of 2021 due to the impact of the sale of overseas loss-making subsidiaries and the gradual divestiture of loss-making business.
Third, the gross profit margin
Chart: Gross profit margin in a single quarter (in %)
Tuopu Group, the gross profit margin in 2021 continued to decline, on the one hand, due to the adjustment of accounting standards, transportation costs were changed from sales expenses to costs, on the other hand, raw material costs and transportation costs increased, and it was impossible to smoothly pass on to the downstream, resulting in a decline in gross profit margins.
Baolong Technology's gross profit margin rebounded in Q1 2021, mainly due to the increase in the proportion of the gross profit margin TMPS valve business, the valve is a part of tire pressure monitoring, and the gross profit margin of the aftermarket is higher than that of the front-loading market. Secondly, its freight is still included in the sales cost, and the rise in overseas freight rates has little impact on its gross profit margin.
Tianrun Industrial's gross profit margin declined due to the decline in the prosperity of heavy-duty trucks, superimposed on the impact of raw material price increases.
On the whole, under the combined effect of factors such as sluggish production and sales of vehicle companies, bulk and rising shipping prices, the profitability of parts companies in the third quarter declined significantly. (The gross profit margin of Baolong Technology has little impact, mainly because its freight is included in the sales cost)
Chart: Sales expense ratio & Management expense ratio (unit: %)
Baolong Technology, after 2018, the sales expense ratio increased significantly, mainly due to the proportion of overseas business accounting for more than 60%, and its export costs (mainly including transportation premiums and customs clearance fees) increased significantly in 2019. In Q4 2020, due to the impact of health events, its international logistics costs increased significantly.
In addition, the management expense ratio of Baolong Technology and Zhongding Shares increased, mainly due to the increase in severance pay due to the sale of some overseas businesses.
Fifth, the return on net assets
Figure: ROE disassembly
The ROE of Baolong Technology is higher than that of the other three, mainly due to the high equity multiplier. From the balance sheet point of view, the liability side, accounting for a large proportion of interest-bearing liabilities of 1.285 billion, greater than cash assets of 512 million, cash flow is slightly tight.
(Lu)
Air suspension, one of the key components of the automotive chassis, is driven by the fact that it replaces the traditional coil spring suspension, and the penetration rate has a large room for improvement. Its market size can be expressed in terms of:
Air Suspension Market Size = Vehicle Sales * Air Suspension Penetration * Bicycle Value (ASP)
Article source: Merger and acquisition of Youshu.