New "storms" are always emerging.
After thirty years of development, precision forging technology has gradually established barriers such as technology, market and scale, and sat firmly in the position of the domestic precision forging gear leader.
However, before it could relax for too long, the automotive market environment changed. Since 2018, the industry's overall production and sales have declined and there has been a ebb; at the same time, the rise of new energy vehicles has affected fuel vehicle companies; in the past two years, the lack of "core" in automobiles has brought greater pressure.
Under the change of the times, if you cannot flexibly adjust and quickly follow up, it is easy to be overtaken by others in curves, and it is a new challenge to meet the fine forging technology.
Author | Miao Lingyun
Source | Mustang Financial Capital Research Group
Amazing differential
Li Shufu has such a classic statement: "Building a car is very simple, that is, four wheels and a few sofas." Obviously, like "I'm not interested in money", this is more of an anecdote after the big guy became famous, the real car, much more complex and sophisticated.
Just like a small differential, it seems inconspicuous, and even many people have not heard of it, but if it is missing, when a modern two-wheeled or four-wheel drive car turns, there will be idling, slippage problems, poor stability, and it is easy to roll over.
As we all know, the longer the radius, the longer the circumference of the circle. When the car is cornering, the wheels of the inside and outside cars take different paths in the same time. If the two wheels rotate freely, it is naturally fine, but when they are connected to the same driving force, it is difficult to turn smoothly or pass through complex road conditions under the condition of ensuring the same speed of rotation.
The picture above is from the prospectus of Fine Forging Technology
The advent of the differential successfully solved this problem. Through the combination of multiple gears and drive shafts, the differential can make the left and right (or front and rear) drive wheels rotate at different speeds. The bevel gear in the differential is exactly what Precision Forging Technology (300258. SZ) main products.
Gears have been around for more than two thousand years (or even earlier) and seem simple to make, but at least on differentials, not so.
On the one hand, the precision and quality requirements of such gears are very high, after all, the application scenario is a high-speed car under the turn, safety must be guaranteed; on the other hand, unlike the cutting processing mode of cylindrical gears, the manufacture of bevel gears is mainly precision forging, which has significant advantages such as good mechanical performance, high production efficiency, energy saving, high precision, high reliability, high life, etc., but more stringent requirements are put forward for molds, production processes, automation levels, etc.
Enterprises in developed countries such as Japan and Germany have long occupied the main share of the world precision forging gear market, and not only the differential, precision forming gear technology, the scope of application in automotive gears has been continuously improved.
After thirty years of development, Fine Forging Technology has gradually caught up with and partially overtaken international advanced enterprises, and is currently in a leading position in China with a market share of about 30%.
From the brink of bankruptcy to the industry leader
The birth of Fine Forging Technology can be traced back to 1992, under the wave of reform and opening up, a joint venture between Taixian Powder Metallurgy Factory and Ye Taojian, a Chinese-American in The United States, tando, engaged in automotive gear production business, with both parties holding 75% and 25% of the shares respectively.
Due to the lack of core technology and the late start of the domestic automotive industry, the company's operating conditions at the beginning of its establishment have not improved, with consecutive losses, and even fell into bankruptcy crisis in 1998. In order to get out of the predicament, Taixian Powder Metallurgy Factory transferred all its shares to Ye Taojian, and through additional investment and other measures, the company slowly gained a foothold and began to turn around in 2002.
Due to his advanced age, Ye Taojian quickly withdrew, coupled with the fact that he was terminally ill in 2003, the process of transferring shares accelerated, and the final takeover was Xia Hanguan (and 10 other natural persons), the actual controller of Jingforging Technology.
Xia Hanguan is a technical manager, an expert who enjoys the special allowance of the State Council, and has the status of member of the National Forging Standardization Technical Committee and a member of the Automotive Transmission Sub-Technical Committee of the National Automobile Standardization Technical Committee. Since its establishment in 1992, he has served as the deputy general manager of the company, responsible for technical research, which also laid the foundation for the continuous investment of Fine Forging Technology in the direction of research and development.
At the beginning of Xia Hanguan's takeover, the technical level of Fine Forging Technology was quite good in domestic enterprises, but the gap with international competitors was still obvious.
However, the self-helpers are blessed, and the gifts of the times soon arrive.
The data comes from the "Annual Report on the Development of China's Automobile Industry" and the Statistical Information Network of the China Association of Automobile Manufacturers
With the continuous improvement of the economic level of industry and residents, after 2000, the mainland automobile industry has also entered a stage of rapid growth, and in ten years, the output has risen rapidly from 2 million to about 18 million, an increase of about 9 times.
At the policy level, in 2004, the "Automobile Industry Development Policy" proposed to "cultivate a number of parts and components enterprises with comparative advantages to achieve large-scale production and enter the international auto parts procurement system"; in 2006, "accelerate the development of key assemblies and parts with independent intellectual property rights" was written into the "Eleventh Five-Year Plan"; in 2007, "precision parts complete processing technology" appeared in the "Guide to the Current Priority Development of High-tech Industrialization Key Areas" and other expressions...
Thanks to this, domestic auto companies have developed rapidly, and many local auto parts manufacturers have also ushered in a golden period of development. In 2010, Fine Forging Technology achieved operating income of 308 million yuan, achieved a non-net profit of 0.67 billion yuan, and the market share of the main products half shaft gear and planetary gear (differential bevel gear is generally composed of planetary gear and half shaft gear) reached 28.46% and 29.11% respectively, and has been firmly positioned in the domestic industry.
The above figure information is compiled from the relevant financial report
After the successful listing in 2011, the development of fine forging technology accelerated again, and in 2018, the operating income and non-net profit reached the peak of 1.265 billion yuan and 237 million yuan respectively, and then remained at the same level.
Barriers to competition, built in thirty years
In the past thirty years, Fine Forging Technology has gone from consecutive years of losses and on the verge of bankruptcy to billions of revenues and healthy cash flows, behind which is the gradual establishment of competitive barriers in the industry.
The most important thing, of course, is the technical barrier.
Xia Hanguan, who came from a technical background, has always attached great importance to technological innovation from the deputy general manager of the company to the chairman and actual controller.
It can be seen that before 2013, the R&D expense rate of fine forging technology remained roughly around 4%, and in the next few years, it increased to about 5%, and in 2020, it increased again to 6.75%, and the intensity and sustainability of investment were in a higher position among listed auto parts companies; at the same time, the proportion of R&D personnel in the company remained at 15% all year round.
When it comes to talent, there is also a detail that is easy to overlook, that is, the industry needs more skilled workers. The lack of skilled workers was once an important factor restricting production capacity, in the process of development for many years, Fine Forging Technology has explored a set of countermeasures through efficient docking and the establishment of training systems.
As of the first half of 2021, Precision Forging Technology has 179 valid patents, including 42 invention patents; the company or its subsidiaries have titles such as "Green Factory" and "Made in China • Hidden Champion".
More importantly, under the long-term accumulation, the company's R & D advantages have been transformed into equipment advantages, and most of its mold processing, measurement, forging, heat treatment, machining and other equipment are domestically leading and internationally first-class, ensuring the product development cycle, quality stability and timeliness of delivery.
It is worth noting that in technological breakthroughs, the process of a little bit of groping is far more complicated than the introduction on paper.
Just in 2011, when discussing the advantages of fine forging technology, third-party institutions such as securities companies still use the expression of "compared with foreign competitors, which have advantages in price, and have the characteristics of reliable quality and stable performance", and when the company describes its own technology in the Prospectus, it only means that it has "approached or reached the advanced level of international peers".
In 2017, in response to investors' questions, Jingforging Technology said that "the main competitors are foreign counterparts such as Japan, Germany, and South Korea, and the company's technical level, cost control level and production capacity have been stronger or higher than these competitors."
At present, more than three of the products of Fine Forging Technology have become export sales, which also reflects the recognition of its technical level by internationally renowned enterprises.
The second is market barriers.
In the process of thirty years of growth, Fine Forging Technology and FAW-Volkswagen, Geely Automobile, Great Wall Motors, Volvo, Ford, Weilai, Ideal and other first-line car companies have a good cooperative relationship, the products are used in Mercedes-Benz, BMW, Audi, Chrysler a series of well-known brand cars, withstood the test of time, in order to establish a customer group, brand reputation, obviously new entrants in a short period of time is difficult to obtain.
Then there are the barriers to scale.
For large car companies, the stability of suppliers' product quality and production capacity are very important, and the investment in plants, equipment and production lines in the precision forging gear industry requires large capital and long-term investment. In fact, the capital expenditure such as the construction of fixed assets is an important expenditure of Jingforging Technology every year, such as the cash paid by it for the purchase and construction of fixed assets, intangible assets and other long-term assets in 2018, 2019 and 2020, totaling 1.363 billion yuan.
High investment, the need for a good capital structure as a support, the same reporting period, the net cash flow generated by the operating activities of Fine Forging Technology reached 1.246 billion yuan, almost relying on its own hematopoiesis, can support the above investment. As a leading listed company in the industry, it naturally has richer financing channels.
For example, on February 17, 2022, Jingforging Technology issued a "Preliminary Plan for Issuing Convertible Corporate Bonds to Unspecified Targets", which intends to raise no more than 1 billion yuan, of which 740 million yuan will be used for the industrialization project of electric drive components for new energy vehicles; in addition, in November 2020, the company also successfully raised 990 million yuan by issuing shares.
Times are turning
In the field of precision forging gears, the leading position of precision forging technology is stable, but the crisis does not only come from competitors, but also from the times.
The picture above is from the China Association of Automobile Manufacturers
In 2017, the production and sales of mainland automobiles reached a historical peak of 29.015 million units and 28.879 million units respectively, and since then it has begun to turn around and enter the downward channel. Under the superposition of the impact of the epidemic, production and sales in 2020 have dropped to 25.225 million units and 25.311 million units respectively, with a three-year decline of 13.06% and 12.35% respectively. 2021 picked up.
Affected by this, as mentioned in the second part, the operating income and non-net profit of Precision Forging Technology have declined slightly in 2019 and 2020.
More importantly, the sudden emergence and violent impact of new energy vehicles. As shown in the figure, in the case of the overall prosperity of the automotive industry, new energy vehicles have maintained a strong growth momentum, with production and sales of 3.544 million units and 3.521 million units in the whole of 2021, respectively, with a year-on-year increase of about 160%.
New energy vehicle manufacturers and fuel vehicle manufacturers do not completely coincide, which requires upstream parts and components companies to rebuild customer relationships and sales channels, in this process, if you can not respond in time, adjust production, marketing strategies, it is easy to be overtaken by curves.
Of course, crisis and opportunity usually coexist, The Spring River Plumbing Duck Prophet, as an important part of the automotive industry chain, Fine Forging Technology has long paid attention to the field of new energy vehicles.
As early as 2011, in the "Prospectus", Jingforging Technology has mentioned "new energy", but it is limited to the interpretation of relevant policies; in the 2012 annual report, it began to mention "continue to focus on the car market and pay attention to new energy vehicles"; in 2013, "expand the supporting business of new energy vehicles" and officially write it into the company's development strategy.
In the first half of 2021, it established business contacts with Weilai, Xiaopeng and Ideal, and the sales of new energy vehicles accounted for 8.62% of the operating income of new energy vehicles, an increase of 6.44 percentage points year-on-year. Comparing the production and sales of new energy vehicles with the overall automotive industry, this is a good data.
At the same time, in order to keep up with the outbreak of the new energy automobile industry, as mentioned earlier, Fine Forging Technology is working hard to promote the construction of related production capacity through fundraising and other means.
It is worth mentioning that in 2015, Precision Forging Technology had contact with Tesla, but there has been no follow-up cooperation.
The transformation from fuel vehicles to new energy vehicles also contains another major opportunity - differential assembly.
The development of new energy vehicles is accompanied by the improvement of electrification, and in this process, higher requirements are put forward for the strength, accuracy and assembly design capabilities of differentials. According to the relevant research report of China Merchants Securities, if it can be changed from a parts supplier to an assembly supplier, the value of bicycles will increase by about three times.
In the face of such dividends, the fine forging technology that has certain advantages naturally does not want to miss, as of now, it has obtained the fixed points of new energy vehicle differential assembly and other projects of Huichuan Technology and other companies, and the nomination of related projects of many new energy vehicle brands at home and abroad; at the same time, the funds raised in 2020 are used to invest in the annual output of 20,000 sets of molds and 1.5 million sets of differential assembly construction projects.
However, it is not only precision forging technology that is eyeing this blue ocean, such as automotive synchronizer manufacturer Haoneng (603809. SH) is also rapidly advancing the differential assembly layout, bluntly saying that it will be the leader in the field.
Or active or passive, after jumping out of the comfort zone, the forged technology will usher in a more powerful opponent, which requires a "zero" mentality to embark on a new journey.