(Report Producer/Author: Southwest Securities, Gong Menghong)
1 Company profile: long history, perfect incentive system
1.1 Forty years, refrigeration faucets have entered the thermal management
The company's original name was "Zhejiang Sanhua Co., Ltd.", referred to as "Sanhua Shares", and in 2016, the company name was changed to "Zhejiang Sanhua Intelligent Control Co., Ltd.", referred to as "Sanhua Intelligent Control". The development process of Sanhua is a refrigeration faucet The history of the development of diversified business faucets can be roughly divided into three stages:
In the first stage (1984-2006), with the help of universities and foreign investment to achieve technological breakthroughs, it grew into a leader in refrigeration devices. Sanhua initially relied on the technology of universities and foreign-funded machines to quickly achieve technological breakthroughs, quickly grew into a leading refrigeration components industry, and was listed on the Shenzhen Stock Exchange in 2005.
In the second phase (2007-2016), the acquisition expanded and diversified businesses developed together. The company consolidated its leading position by acquiring the Lantong four-way valve business in 2007 (consolidated in 2008), and then expanded the field of dishwashers, washing machines and coffee machines through the acquisition of the German Avico Group in 2012, and expanded the micro-channel field by purchasing 100% of the equity of Sanhua Microchannel in 2015.
The third phase (2017 to date) has entered the field of new energy thermal management. In 2017, the company officially entered the field of new energy vehicle thermal management by acquiring 100% of the equity of Sanhua Automobile Zero (2017 consolidated table), and after several years of development, it has rapidly grown into a domestic new energy thermal management leader.
Revenue and profit growth was solid. In stages, the company's revenue growth rate in the early stage of listing is higher, CAGR 43% from 2002 to 2007, and the company's growth in the second and third phases is relatively stable, with 2008-2016 REVENUE CAGR 13.5%, 2017-2020 revenue CAGR 8%, and in the first three quarters of 2021, benefiting from the high growth of the auto zero business, the company's revenue increased significantly to 11.7 billion yuan, an increase of 35.9% compared with the same period in 2019, and a two-year compound growth rate of 16.6%.
In terms of profitability, the company maintains good profitability while the rapid development of the business, since 2010, the company's gross interest rate has been maintained at about 25%, and the net interest rate has been maintained at about 10%, and there has been no significant fluctuation, which makes the company's net profit basically maintain the same trend as revenue.
There are two major sectors of refrigeration and steam, and the business structure is clear. The company's business is divided into two major sectors, one is the refrigeration sector, including refrigeration business (including commercial business and household business), micro-channel business, Avico business, and the other is the auto zero sector, that is, auto zero business. From the perspective of application scenarios, the most important application scenarios of refrigeration business and micro-channel business are household air conditioners and commercial air conditioners, the main application areas of YAVICO's business are dishwashers, the main application scenarios of the auto zero business are new energy vehicles, and the new energy vehicle business of 21H1 company accounts for about 80% of the auto zero business.
The auto zero business has developed rapidly, and the proportion of revenue has continued to increase. The company acquired Sanhua Auto Zero in 2017, Sanhua Auto Zero grew rapidly after being acquired, and the following year the auto zero business (2018) grew into the second largest business after the refrigeration business, according to our split (since 2019, the refrigeration sector has been disclosed together), and the revenue of the refrigeration business, the auto zero business, the micro-channel business and the YAWICK business accounted for 54.0%, 20.4%, 9.9% and 6.6% respectively in 2020.
1.2 The controlling right is concentrated and the incentive system is perfect
Controlling stake is concentrated. The shareholding system of Sanhua Intelligent Holdings is centered on mr. Zhang Daocai, Mr. Zhang Yabo, and Mr. Zhang Shaobo' father and son, the controlling right and management rights are controlled by the family, Sanhua Holdings, Sanhua Green Energy, and Mr. Zhang Yabo are the consistent actors of Sanhua Intelligent Holdings, and the three consistent actors directly or indirectly control 51.8% of the equity of Sanhua Intelligent Holdings, so the father and son have absolute control over the company, which is convenient for the promotion of the company's major affairs and is conducive to improving the efficiency of decision-making.
The equity incentive is perfect to ensure the company's operating efficiency. Since 2018, the company has implemented three equity incentive plans, in which the incentive objects include the company's directors, senior executives, foreign core personnel, etc., and the total number of grants is about 0.95% of the company's total share capital. From 2018 to 2020, the company has achieved the goal of equity incentives, and we believe that equity incentives have played a better role in mobilizing employee enthusiasm and helped the company's ROE level to stabilize in the forefront of the industry. (Source: Future Think Tank)
2 Auto Zero Plate: Thermal Management Faucet, Rising
2.1 Industry analysis: thermal management of 100 billion space, steam zero pattern gradual change
2.1.1 The new energy vehicle market is booming, and the penetration rate at home and abroad continues to increase
New energy sales exceeded expectations, and the market boom was high. In April 2021, the association of new energy vehicles in the 21 years of the domestic sales of 21 years of the forecast of 2.4 million units, recently released data show that the domestic new energy vehicle sales in 21 years as high as 3.52 million, the corresponding penetration rate of 13.4%, far exceeding market expectations, so the association also raised the 2022 sales forecast to 6 million vehicles, corresponding to a penetration rate of about 22%.
The penetration rate of new energy vehicles is expected to exceed 20%. Although the sales volume and penetration rate of new energy vehicles in January fell month-on-month, the penetration rate is still 16.6%, and we believe that the penetration rate of domestic new energy vehicles in 22 years is still likely to exceed 20%, which has the following two reasons:
On the one hand, if the penetration rate of domestic new energy vehicles in 22 years is 20%, the sales volume will increase by about 56% compared with 21 years, and the growth rate of the new energy vehicle sales of mainstream car companies in 22 years is higher than this level.
On the other hand, according to the S-curve model of industrial growth in the theory of industrial life cycle, emerging industries will accelerate penetration after the penetration rate reaches about 10% of the theoretical upper limit, and the development of smart phones and mobile Internet in the past is in line with this law, and domestic new energy vehicles began to accelerate penetration after the sales penetration rate exceeded 9% in April 2021, and the development status is in line with the S-curve law. If the penetration rate growth rate remains at the level of 21 years (that is, 8pp), the permeability rate in 22 years will reach 21%, so it is speculated that the penetration rate of 22 years is very promising to reach 20%.
Overseas, global carbon neutrality empowers the growth of new energy vehicles. In the context of carbon neutrality, many countries have also clarified the development goals of electric vehicles, Japan, South Korea, Italy and other countries plan to exceed 30% of electric vehicle penetration in 2030, and the European Union proposes to ban the sale of traditional fuel vehicles in 2030. In 2021, overseas new energy vehicle sales of 2.79 million units, an increase of about 40% year-on-year, penetration rate of about 4.6%, according to EVTANK's forecast, 22 years overseas market new energy vehicle sales are expected to exceed 4 million units, 21 to 25 years overseas market is expected to reach a compound growth rate of 38.1%.
Based on the above analysis, we make the following assumptions: 1) domestic automobile sales from 2022 to 2025 are 2748, 2872, 2994, 31.16 million units, respectively; 2) the domestic new energy vehicle sales penetration rate in 2022 is 20%; 3) the S-curve model of reference industrial development, in the penetration rate reaches half of the theoretical upper limit (the theoretical upper limit of the penetration rate of new energy vehicles is 100%), the penetration rate growth rate will not decline, so we conservatively assume that new energy vehicles will be 2023 to 2025 The penetration rate increases by 6 pp per year; 4) From 2022 to 2025, foreign new energy vehicle sales will be 421, 533, 757 and 10.16 million units respectively (this result is predicted by EVTANK).
We estimate that global new energy vehicle sales will reach 9.71 million units in 2022 and 22 million units in 2025, with a compound growth rate of 36.7% from 21 to 25 years.
2.1.2 The value of thermal management of new energy vehicles is doubled, and the value of bicycles exceeds 6,000 yuan
New energy vehicles have spawned new demands for thermal management. Compared with traditional automobile thermal management, the thermal management bicycle value of new energy vehicles has increased by more than 4,000 yuan. The value increase of new energy thermal management mainly comes from two aspects: 1) air conditioning thermal management, without the waste heat of the engine, the air conditioner needs to reconstruct the warm air system, and the value increase is above 2000; 2) the thermal management aspect of the three electric system, the three electric system, especially the battery system, has a higher demand for ambient temperature, and its efficient working temperature is 20-35 °C, so that the thermal management value of the entire three-electric system is also more than 2000 yuan.
Air conditioning thermal management heat pump program bicycle price of more than 4000 yuan. Heat pump air conditioning compared to PTC program energy saving of more than 20%, is the mainstream direction of the development of new energy vehicle air conditioning thermal management, according to our calculations, the value of the car air conditioning heat pump program is about 4500 yuan, about 1000 yuan higher than the PTC program bicycle value, than the traditional car air conditioning thermal management bicycle value of about 3000 yuan.
The value of the three electric heat management bicycles exceeds 3,000 yuan. The most important thing in the three electric heat management is the thermal management of the battery, the battery heat management mainly has three schemes of air cooling, liquid cooling and direct cooling, of which the liquid cooling scheme is the most mainstream scheme at present, Tesra Model S, BYD EV360, Geely Emgrand EV450 are all using liquid cooling schemes. According to our calculations, the value of the bicycle using the most mainstream liquid cooling scheme of the three-electric system is about 3400 yuan, which is about 2200 yuan higher than the thermal management value of the power system of traditional cars.
Overall, the value of the new energy vehicle thermal management using the PTC scheme plus battery liquid cooling scheme is about 6900 yuan, the value of the bicycle using the heat pump scheme with liquid cooling scheme is about 7900 yuan, while the value of the traditional automotive thermal management bicycle is only 2700 yuan.
2.1.3 Global new energy thermal management scale calculation
At present, some models with high sales are also based on cost considerations, and also use low-value thermal management solutions, such as the Wuling Hongguang mini, which is the first domestic sales in 21 years, its motor uses natural air cooling, the battery uses forced air cooling, and the battery heating uses electric heating membrane heating, eliminating all parts of the cooling water circuit. For low-end models, the value of new energy thermal management bicycles generally accounts for 5% to 10% of the total vehicle value, and we estimate the vehicle thermal management value of about 2500 yuan according to the Wuling Hongguang mini thermal management accounting for 7.5% of the vehicle value.
We assume that 22 years of each program accounted for such as the NE era forecast, the reference value of each subdivision of the program; 21 years of Hongguang mini sales of 395,000 units, accounting for about 6.3% of the global new energy vehicles, we assume that the proportion of Hongguang mini sales in 22 years remained unchanged; at the same time assume that the heat pump program (including liquid cooling and direct cooling) penetration rate of 16%, so we calculated that the average price of the heat pump solution in 22 years was about 8150 yuan, and the average price of the PTC solution was about 5500 yuan.
Based on the above analysis, we assume that: 1) global new energy vehicle sales as predicted above; 2) the average value of new energy source thermal management bicycles in 2022 is 5500 yuan for PTC solutions and 8150 yuan for heat pump solutions; 3) the penetration rate of heat pump systems will increase from 13% to 34% from 13% to 2025; 4) with the maturity of technology and scale effects, the value of bicycles in heat pump solutions will decrease by 2% per year by 2025, and the value of bicycles in PTC solutions will decrease by 1% per year.
Based on the above assumptions, we estimate that the global new energy thermal management scale will be 58 billion yuan in 2022, 134.9 billion yuan in 2025, and the compound growth rate from 21 to 25 years will be 37.9%, and the market space is very broad.
2.1.4 The rise of domestic automobiles, the gradual change of the thermal management war situation
Foreign leaders monopolize the traditional thermal management market, and the advantages of local operations are obvious. According to the data of China Automobile Association, the global automotive thermal management market (including air conditioning systems) in 2019 was about 260 billion yuan, with a CR4 of 59%, monopolized by Denso (Japan), Valeo (France), Han Ang (South Korea), and MAHLE (Germany), and the domestic TOP3 global market share was only 4%. The reason why the overseas giants eventually monopolize the market is that we believe that to a certain extent, it is due to the advantages of their local operations, and the countries where these giants are located have a number of traditional vehicle companies, such as Toyota, Citroen, Hyundai, Audi and so on.
Domestic new energy vehicles stand on the historical stage. The top five of the traditional automobile ranking has been occupied by developed automobile companies, the pattern of new energy vehicles has been very different from traditional cars, on the one hand, The country has become the main battlefield of new energy vehicles, and the sales of new energy vehicles have steadily accounted for more than 40% of the world; on the other hand, domestic automobile manufacturers have achieved curve overtaking with the help of new energy: in 2021, domestic brands SAIC-GM-Wuling and BYD have obtained two seats in the top five of global new energy passenger car sales, and 8 new energy brands in China have been shortlisted for the top 20 sales, 8 The total global market share of big brands is 29.1%, and in the whole of 2021, the top 10 models of new energy vehicle sales in China are only Tesla's MODEL 3 non-domestic brands, and Chinese cars are rapidly rising.
Under such a pattern, the thermal management pattern is also quietly changing. Compared with the market share in traditional thermal management, the share of domestic auto zero manufacturers in new energy thermal management has increased by more than 10pp, according to the global new energy thermal management scale of 19.7 billion yuan in 2020, the domestic CR3 in 2020 is about 14%, of which Sanhua is about 7.7%, and the market share of domestic manufacturers in new energy thermal management in 21 years is still growing, and it is speculated that Sanhua's global market share will reach about 9.7%.
2.2 Company analysis: new energy thermal management leader, there are many points to see
2.2.1 Highlight 1: the earliest layout, the fastest transformation, and the obvious first-mover advantage
The thermal management layout of the new energy vehicle is the earliest. In 2007, Sanhua Auto Zero began to develop new energy thermal management parts, and at that time, almost no listed companies in China carried out related layouts. In 2011, the global sales of new energy vehicles was only 100,000 units, the sales penetration rate was only 0.1%, Sanhua Auto Zero won the first automotive electronic expansion valve patent, in 2014 Sanhua Auto Zero vehicle electronic expansion valve has begun mass production, in 2017 when the company acquired Sanhua Auto Zero, Sanhua Auto Zero in the new energy thermal management layout has been relatively perfect, has begun to mass production of electronic expansion valves, refrigerant valves, battery coolers, electronic water pumps, electronic water valves, electronic oil pumps, battery coolers, cooling plates, oil coolers, Solenoid valves, separators and other parts that can be applied to new energy thermal management.
The transition to new energy business is the fastest. In 2017, Sanhua Auto Zero New Energy business accounted for less than 30% of the auto zero business, still a traditional auto zero company, the company based on the prospects of new energy thermal management, decisively acquired Sanhua Auto Zero, while raising about 1.3 billion funds to increase the new energy thermal management, the company's help to promote the rapid transformation of Sanhua Auto Zero business, in 2020, the new energy business in the auto zero business has accounted for more than 60%, and comparable companies are still dominated by traditional auto business.
The first-mover advantage is obvious, and the scale of new energy thermal management is the largest. The company's auto zero business scale is not eye-catching compared with many comparable listed companies, but thanks to the forward-looking layout of new energy thermal management and the first-mover advantage of quickly completing the transformation to new energy thermal management, riding on the east wind of new energy vehicles, the company's new energy thermal management scale has reached about 1.5 billion yuan in 2020, and about 3.6 billion yuan in 2021, far exceeding domestic comparable companies.
2.2.2 Highlight 2: Rich patent achievements and significant product advantages
The company continues to invest heavily in research and development, and the R&D expense ratio ranks upstream in the industry. From 2017 to 2020, the company's R&D expense ratio increased by 16.6%. From the perspective of R&D expense rate, since 2018, the R&D expense rate of Sanhua Intelligent Control has remained above 4%, and 2021H1 is 4.6%, ranking at the upstream level of comparable companies. The company attaches great importance to the R & D investment of the auto zero business, and the number of R & D personnel in the company in 2020 increased by 23.2% year-on-year, mainly to increase the R & D investment of the auto zero business.
Continuous R&D investment brings rich patent output. According to the data of the patent search and analysis website, as of December 31, 2021, Sanhua Auto Zero has 927 patents, far exceeding the domestic comparable companies, and comparable companies Yinlun Shares, Songzhi Shares, Tuopu Group, and Aotejia have 800, 490, 200 and 593 patents respectively.
Continuous investment in research and development has also brought the company the richest product lineage and high bicycle value. In addition to compressors, PTC, pressure sensors, the company covers almost all parts of new energy thermal management, and the company also has R & D preparations in the field of compressors and pressure sensors, and has the ability to enter these fields to produce corresponding products if necessary.
From the perspective of individual products, the company is good at grasping the key points and has a leading edge in the core areas. In addition to the integrated components, the company's auto parts revenue is the top single product is the heat pump system and the electronic expansion valve, the heat pump system and the electronic expansion valve are the core system or components of the new energy thermal management comparison, the company has a certain leading edge in these two products.
Heat pump systems: Able to provide leading solutions. There are two main technical routes for heat pump air conditioning, one is the CO2 refrigerant technology route dominated by Germany, and the other is the R1234yf refrigerant technology route dominated by the United States, and the company has the ability to match.
R1234yf refrigerant technology route, the model Y's eight-way valve heat pump system, which has been mass-produced, is jointly developed with Tesla, which greatly improves the integration and makes the EPA range significantly higher than the PTC solution.
In terms of CO2 refrigerant, the company began to do related parts and components 7 years ago, and now the company has completed the corresponding system research and development, and achieved mass production on Mercedes-Benz Maybach. In addition, Volvo, Weilai, Xiaopeng, Ideal and other car companies are actively cooperating with the company to develop CO2 refrigerant heat pump systems.
Electronic expansion valve: high technical content, the company's leading edge is obvious. Electronic expansion valve is the core component of thermal management of new energy vehicles, new energy vehicles usually use at least 2 electronic expansion valves, and some models will even use 6 to 7 electronic expansion valves.
Electronic expansion valve has both software and hardware barriers, software on the basis of purchased chips need to do their own algorithm and system matching, hardware requirements of stability, sealing, noise control, no long-term experience accumulation is difficult to do.
The company's electronic expansion valve has obvious leading advantages, automotive electronic expansion valve and home appliance electronic expansion valve technology homologous, the company has a very first-mover advantage, the application of electronic expansion valve in new energy vehicles is the first of Sanhua Automobile Zero, as of December 31, 21 the company has obtained 28 automotive electronic expansion valve related patents, 2019 the company's automotive electronic expansion valve won the Ministry of Industry and Information Technology "manufacturing single champion product" title, and the company's automotive electronic expansion valve makes the company the only one in China to win the Nobel Prize in the automotive industry United States Automotive News PACE Awards for companies. At present, the domestic comparable company has fewer supporting mass production models, and the company has already equipped a large number of mass production models of major North American customers and BYD customers.
2.2.3 Highlight 3: Large-scale casting cost advantage, globalization gives revenue resilience
Cost advantages for large-scale foundry companies. The scale advantage of the auto parts business comes from two aspects: 1) the company's auto zero business has achieved an annual sales scale of more than 4 billion yuan, with a certain scale effect; 2) the company's auto parts business products and refrigeration parts products have a synergistic effect, the two major plate products are similar, procurement, production has a certain synergy effect, resulting in a greater scale effect. The company's main single product electronic expansion valve, thermostat valve, battery cooler have a high gross interest rate of more than 35%, the overall gross profit margin of auto zero is stable at about 30%, compared with comparable companies, the company's gross profit margin has continued to maintain a leading edge of more than 3pp in the past two years.
The layout of the globalization strategy is perfect. The company has been pursuing a global strategy, business global layout, at home and abroad has a number of auto zero R & D centers, manufacturing plants and sales branches, at the same time, the company has at home and abroad mainstream vehicle customers, auto zero tier supplier customers, such as BYD, Great Wall, BMW, Mercedes-Benz, Han Ang, Valeo and other high-quality customers.
The global layout makes the company's revenue extremely resilient. In 2019, the domestic automobile market and the new energy vehicle market double decline, auto zero company was deeply affected, Songzhi, Aotejia, Tuopu all fell in revenue, while Sanhua auto zero business benefited from the global layout, benefited from the growth of overseas new energy vehicle business, still achieved good revenue growth.
2.2.4 Revenue growth rate is gratifying, and future growth is highly certain
With the first-mover advantage and rapid transformation, riding on the east wind of new energy, the revenue growth rate of the company's auto zero business is outstanding. From 2017 to 2020, the company's auto zero business revenue increased from 1.03 billion yuan to 2.47 billion yuan, with a compound growth rate of 33.7%, far exceeding comparable companies. In 2021, the company's auto zero business continues to grow explosively, and it is expected to grow by more than 80% for the whole year.
With 38 billion orders in hand, the company is full of certainty about future growth. In 2021, H1 company added nearly 9 billion new auto zero orders, as of the third quarter, the company's orders in 2025 and before the company were about 38 billion, and without new orders, the company's auto zero business from 2022 to 2025 can achieve revenue growth of nearly 30% per year on average.
The certainty of the company's growth also comes from the strong strength of the company's major customers and active sales plans. The company's two largest customers are Tesla and BYD, the company's share of Tesla's new energy thermal management accounts for about 70%, and the company is also bydy's exclusive supplier of multiple thermal management valve products. Tesla and BYD occupy the top two of the 2021 new energy vehicle sales list, and have a very positive sales plan in the future, at the beginning of 2022, Tesla and BYD continued to perform better, and the sales of new energy vehicles in January 22 increased by more than 200% year-on-year.
2.2.5 Calculation of the zero business scale of Sanhua Automobile
We believe that the company, as a domestic new energy thermal management leader with many points of view, under the new pattern of new energy vehicles, compared with foreign manufacturers, it also has the advantage of being close to the water, the development speed will lead the industry, and the market share is expected to continue to rise.
Based on the analysis above, we make the following assumptions: 1) assume that the company's new energy thermal management business will grow by 50%, 10%, 6%, 3% and 1% of the industry in 21 to 25 years, respectively; 2) the company's traditional auto zero business revenue will account for 20% in 2021, and then reduce by 0.6 billion per year thereafter.
According to our estimates, the company's auto zero business will reach 15.58 billion yuan in 2025, CAGR of about 36% from 2021 to 2025, and the company's new energy thermal management market share of about 11% in 25 years. (Source: Future Think Tank)
3 Refrigeration plate: the king of refrigeration parts, steady development
3.1 Industry analysis: Home air conditioners are again embracing opportunities, and other industries have broad prospects
3.1.1 Home appliance industry willow dark flowers, total structure two-wheel drive
In the past few years, the home air conditioning industry has not only faced the pressure of slowing growth, but also faced the huge impact of the epidemic in 2020. We believe that the slowing growth of the home appliance industry is expected to enjoy the red benefits of a mild recovery in the post-epidemic era in the future, with dual opportunities in terms of total and structure.
1) In terms of total volume, global household air conditioners are expected to recover moderately in the post-epidemic era, new home appliances are expected to promote the growth of rural consumption in the countryside, and the demand for upgrading will drive the growth of domestic air conditioners.
The globalized home business in the post-COVID-19 era will enjoy moderate growth brought about by the recovery. The epidemic has caused a sharp decline in global air conditioning sales to bring a low base, 20 years of global household air conditioning sales fell to 153 million units, the post-epidemic era As countries resume air conditioning sales are expected to grow, according to Oreh consulting data, global air conditioning sales are expected to reach 170 million units in 2025, with a compound annual growth rate of about 2.1%. The company has been adhering to the strategy of globalization, home business layout global, with China, North America, Europe, Japan, South Korea, Southeast Asia more than 10 sales companies, domestic Xinchang, Hangzhou, Wuhu and overseas Vietnam, the United States, Mexico, Poland 7 major manufacturing bases, China Xinchang, Hangzhou and overseas Austria three major R & D centers, overseas business proportion has been maintained at about 50%, will greatly enjoy the global recovery brought about by the increase in air conditioning sales.
New home appliances going to the countryside will promote rural household air conditioning consumption. In 2007, the Ministry of Finance issued the "Notice on the Pilot Work of Sending Home Appliances to the Countryside", and then implemented policies such as "home appliances going to the countryside" and "replacing the old with the new" throughout the country, bringing about the rapid penetration of air conditioners, refrigerators and washing machines in rural areas, and the number of air conditioners, refrigerators and washing machines per 100 households in rural areas increased rapidly from 8.5, 26.1 and 45.9 units in 2007 to 22.6, 61.5 and 62.6 units in 2012.
In December 2021, the state again proposed the policy of going to the countryside, although the focus of this statement is on the renewal of home appliances, but it is also conducive to accelerating the replacement speed of rural white electricity and promoting the overall sales increase. As of 2020, the number of air conditioners per 100 households in rural areas is only 73.8 units, which is not yet saturated, and there is still a big gap between 149.6 units per 100 households in cities and towns, and it is expected that the policy of going to the countryside will also promote the increase in air conditioning ownership per 100 households in rural areas to a certain extent, thereby boosting the demand for air conditioning components.
Renewal drives domestic sales growth. In 2020, the domestic sales of air conditioners have also brought a low base due to domestic impact, and the industry online data shows that in 2020, the domestic sales of air conditioners were 80.28 million units, down 12.9% year-on-year, and the domestic sales in 2021 have begun to recover moderately, and the overall domestic sales in 2021 are 8470 units, an increase of 5.5% year-on-year. Domestic air conditioning demand is mainly divided into new demand and update demand, the current domestic air conditioning is close to saturation, new demand began to decline marginally, but thanks to the increase in ownership, update demand is expected to continue to increase, 2030 domestic sales of air conditioning total demand is expected to exceed 130 million units, 2021 to 2030 domestic sales compound growth rate of 5.5%, growth is still stable.
2) Structurally, energy-saving and efficient electronic expansion valves help global carbon neutrality, and the penetration rate is expected to continue to increase.
The new national standard promotes the penetration rate of electronic expansion valves to continue to increase. The use of electronic expansion valves in inverter air conditioners is one of the important means to improve energy efficiency, and the iteration of energy efficiency standards promotes the penetration of electronic expansion valves. Driven by the energy efficiency standards in 2013, the penetration rate of domestic electronic expansion valves in domestic air conditioning production increased from 15% in 2012 to 40% in 2019.
On January 12, 2020, the Standardization Administration of the People's Republic of China issued the "Room Air Conditioner Energy Efficiency Limit Value and Energy Efficiency Grade GB21455-2019", which was officially implemented on July 1, 2020, with a buffer period of one year. The new national standard energy consumption standard is more stringent, the original frequency conversion and fixed frequency air conditioning standards are combined, the original frequency two energy efficiency is reduced to the new five levels (access threshold), while the original frequency conversion level three and the fixed frequency level is downgraded to four levels of non-energy-saving products, air conditioning has fully entered the era of frequency conversion, according to the "Green and Efficient Refrigeration Action Plan" issued by the National Development and Reform Commission, in 2022, the energy efficiency level of household air conditioners will increase by more than 30%. From the monthly data, the new national standard has driven the penetration rate of electronic expansion valves from about 40% at the beginning of the 20th century to about 60%, and it is only half a year away from the end of the buffer period, we believe that with reference to developed countries such as Japan, the penetration rate of the future electronic expansion valves in the mainland can maintain an annual growth of more than 5pp, and the long-term is expected to be 90% to launch an impact.
The global pursuit of carbon neutrality is determined, and the penetration rate of overseas electronic expansion valves will continue to increase. Globally, the concept of green development is deeply rooted in the hearts of the people, and more than 120 countries and regions have made carbon neutral commitments. Most countries, including the European Union, the United Kingdom, Canada, Japan, New Zealand, South Africa, and the United States, plan to become carbon neutral by 2050; some countries plan to achieve it earlier, such as Uruguay's target by 2030, Finland's by 2035, Iceland and Austria by 2040, and Sweden's 2045. Global carbon neutrality will promote the upgrading of air conditioners, and the penetration rate of electronic expansion valves overseas will continue to increase.
3.1.2 Commercial, dishwasher, micro-channel prospects are broad
Sanhua's commercial business mainly involves commercial air conditioning, food cold chain, transportation cold chain and other fields, which have good prospects.
From the perspective of commercial air conditioning, according to P&S Intelligence's forecast, the global commercial air conditioning market will reach 25.4 million units in 2030, with a compound annual growth rate of 3.5%.
From the perspective of food cold chain and transportation cold chain field, the mainland food cold chain logistics demand grew rapidly, 15 to 20 years mainland food cold chain logistics demand increased from 110 million tons to 280 million tons, CAGR as high as 21.7%, the mainland refrigerated truck ownership from 93,000 to 287,000 vehicles, CAGR up to 25.1%, and the current Chinese frozen food consumption is still a big gap compared with developed countries, according to the data released by the China Federation of Logistics and Procurement, from the cold chain field, In the future, the scale of cold chain logistics will still maintain a growth rate of about 20%; from the perspective of the world, according to the forecast of Ai Media Consulting, global cold chain logistics expenditure is also expected to grow steadily in the future. In this industry context, we believe that the company's commercial business is expected to continue to maintain a high growth momentum in the future.
The penetration rate of microchannels is low, and the long-term prospects are promising. In 2019, the global penetration rate of micro-channel heat exchangers was 6.5%, and the penetration rate in China was only 1.7%, and the penetration rate was low for two main reasons: 1) the performance of micro-channel heat exchangers needs to be improved, and it is currently mainly used in single-cooling air conditioners, which is difficult to apply to heat pump air conditioners; 2) Most of the head brands in the household air-conditioning industry have their own copper tube production lines, and the existing production pattern micro-channels are unlikely to penetrate significantly for the time being. But the micro-channel has certain advantages, the micro-channel heat exchanger is all aluminum material, lighter weight, only about 50% of the copper tube fin heat exchanger, all aluminum is easy to recycle, more environmentally friendly, and can reduce the amount of refrigerant injection, in recent years, the copper and aluminum price difference continues to widen, environmental protection and energy-saving awareness at home and abroad continues to strengthen, we believe that in this context the penetration rate is expected to continue to increase, the industry prospects are long-term optimistic.
Domestic dishwashers continue to penetrate, and the market space is vast. In 2014, Fangtai launched a sink dishwasher to stimulate market demand, since then the domestic dishwasher sales continued to increase, according to Aowei cloud network data, from 2014 to 2021 mainland dishwasher sales increased from 238,000 units to 1.952 million units, CAGR 35.1%, the growth rate has slowed down in the past two years. We believe that the reason for the slowdown in growth may be due to the lack of localization of products and insufficient consumer awareness, but there is no technical problem in product localization, the penetration rate of mainland dishwashers is currently at a level of less than 2%, in the long run, with the continuous improvement of product strength that is more in line with Chinese-style household dishwashers, the environment of superimposed consumption upgrades and the rapid urbanization process, the growth potential of China's dishwasher market is huge, and it is expected that the penetration rate of about 30% in Japan, which is similar to our food culture, is close.
3.2 Company analysis: The refrigeration sector has grown steadily, and various businesses have bright spots
3.2.1 The refrigeration sector is growing steadily, and the king of refrigeration is the head of the word
The refrigeration sector grew steadily. Although the air-conditioning industry has long been saturated, under the coordinated development of diversified businesses, the company's refrigeration sector has grown steadily, and the revenue of the refrigeration sector increased from 6.77 billion yuan to 9.40 billion yuan from 2016 to 2019, with a CAGR of 12.5%. The revenue of the refrigeration sector is also resilient, and the revenue affected by the epidemic in 2020 still achieved a slight increase, and thanks to the high growth of the commercial business and the turnaround of Avico's business, the company's revenue in 2021H1 increased by 9.8% compared with the same period in 2019, with a compound growth rate of 4.8% in two years.
3.2.2 Refrigeration faucets have many advantages, and commercial business helps development
According to the application scenarios, Sanhua's refrigeration business can be divided into household business and commercial business, household business mainly includes household air conditioners, household refrigerators, household heat pump water heater parts and system solutions, of which household air conditioning is the most important application field; commercial business mainly includes commercial air conditioning, food cold chain, transportation cold chain and other components and system solutions.
The company is the leader in this field, the main components of electronic expansion valves, four-way reversing valves and globe valves global market share of up to 53%, 66%, 35%, are the first in the market.
(1) The product lineage is rich, and the customer's high-quality production capacity is sufficient
The product lineage is rich. The company's products include air conditioning four-way reversing valve, electronic expansion valve, globe valve, refrigerator solenoid valve, electric switching valve, gas-liquid separator, oil separator, etc., the product lineage is very rich.
Electronic expansion valves, four-way reversing valves and globe valves are the main components and have won many awards. Electronic expansion valves, four-way reversing valves and globe valves are the most commonly used components in air conditioning, in the usual household and commercial air conditioning circuits, these three valves will be used, these three valves are also the most important components of Sanhua refrigeration business, accounting for 20%, 35%, 13% of the refrigeration business revenue in 2019, a total of 68%. Sanhua's three valves have won many awards, including the "Third Prize of Zhejiang Machinery Industry Science and Technology Award", "2021 China Refrigeration Exhibition Innovative Product Award", "Manufacturing Single Product Champion Award" and so on.
Customer quality, sufficient production capacity.
The company's rich and high-quality products help the company attract many high-quality customers at home and abroad, including domestic Midea, Gree, Haier, Japan's Mitsubishi Heavy Industries, Toshiba, the United States GOODMAN, Sike, Germany Bosch and so on.
The company's refrigeration business currently has sufficient production capacity to meet customer needs, the main products of the refrigeration business are four-way valves, globe valves, and electronic expansion valves for air conditioning The annual production capacity in 2020 is 8081, 11493, 49.69 million units, and the production utilization rate is 88.0%, 69.4%, 82.1%, and in May 21, Sanhua issued 3 billion convertible bonds to expand and improve production capacity, and after the completion of the project, it will add an annual output of 65 million sets of commercial refrigeration and air conditioning intelligent control components. It will also greatly improve the annual output of 55 million sets of energy-efficient refrigeration and air conditioning control components production capacity, which will enable the company to better respond to the growing market demand.
(2) The technical strength is well recognized, and the profitability is far beyond the same industry
Strong R & D capabilities, technical strength is well recognized. The company's continuous investment in the field of refrigeration has brought fruitful patent results, as of 2020, Sanhua has 2379 patents authorized, including 1168 patented inventions, according to the patent inspection and analysis website, as of December 31, 2021, under the name of the parent company, Sanhua has 967 patents, which are much higher than comparable companies. Sanhua's technical strength is also deeply recognized, and has been invited to preside over the drafting of more than 20 Chinese national or industry standards, with an academician site of the Chinese Academy of Sciences, and its Fulda laboratory has become a nationally recognized laboratory through CNAS review.
The company has a profitability that far exceeds that of its peers. According to the data disclosed in 18 years, the gross profit margin of Sanhua refrigeration business was 32.6%, which was 22.2pp and 26pp higher than DunAn and Kangsheng respectively, and from the data of the entire refrigeration sector, the gross profit margin of Sanhua in 2020 was still much higher than that of comparable companies.
The linkage pricing mechanism counters the risk of raw material fluctuations and gives profitability resilience. The raw materials required for the company's production are copper, aluminum, etc., which account for a large proportion of the product cost composition, so the fluctuation of the market price of raw materials will bring greater cost pressure to the company, and the company has established a linkage pricing mechanism to counter the risk very early. In addition, the company will also reduce the adverse impact of raw material price fluctuations on the company through commodity futures hedging operations and timely negotiation with customers. Therefore, in the context of the impact of the global epidemic since 2020 and the sharp rise in global commodities, the company's refrigeration business has still been able to maintain a gross profit margin of more than 30% far ahead of the market.
(3) Prepare for the dual layout, commercial business to help growth
The company has a deep understanding of the industry, at the beginning of the establishment of the company on the commercial business layout, in recent years, in the "focus on leading, innovation and beyond" business strategy, the company insight into the development trend of the commercial field, has been further expanded, commercial business in the refrigeration business revenue proportion continues to increase, the current commercial business revenue has increased to 25%.
Sanhua, which combines product advantages, technical strength and good profitability, has responded well to the challenge of the decline in the growth rate of the home appliance industry under the forward-looking dual layout of household and commercial use. The company's commercial refrigeration business performed well, maintaining a revenue growth rate of more than 10% per year, successfully driving the steady growth of the refrigeration business. In 2020, in the context of the impact of the epidemic, the company's refrigeration business revenue still achieved about 6.5 billion yuan in revenue, an increase of 5.5% year-on-year, mainly due to the contribution of commercial business.
3.2.3 Micro-channel growth is steady, and Avico has turned losses into profits
Microchannel has a wide range of applications, unique product advantages, and the market is leading the world. In 2015, the company purchased 100% of the equity of Hangzhou Sanhua Micro channel heat exchanger Co., Ltd. and officially entered the micro channel business. The company's main products of micro-channel are micro-channel condenser, micro-channel evaporator, micro-channel heat pump heat exchanger, micro-channel inner tank heat exchanger, etc., which are mainly used in the field of air conditioning, and have expanded in the field of ice boxes, food cold chains, and heat pump water heaters. Sanhua micro-channel heat exchanger product advantages are obvious: 1) Sanhua micro-channel can be used in both evaporators and condensers, while competitors are mostly only used in condensers; 2) Sanhua micro-channels break through the traditional flat plate shape, and the applicable scenarios are more abundant; 3) Sanhua micro-channel energy-saving and environmentally friendly, Sanhua's micro-channel heat exchangers have won the second China Environmental Protection and Energy-saving Patent Award. Thanks to the advantages of product technology, Sanhua Microchannel leads the world in market share, with a market share of about 50%.
Revenue growth is solid and gross margin is expected to return to normal levels. Since the acquisition, Sanhua Micro channel business has grown steadily, according to our calculations (non-auto zero business has not been split and disclosed after 2019), Sanhua Micro Channel business has a 7.3% annualized growth rate from 2015 to 2020, and an increase of about 20% in the first three quarters of 2021 compared with the same period in 2019. Micro-channel gross profit margin is greatly affected by raw material price increases, 2020 and before stable at a higher level of about 30%, in 2021 by raw material price increases fell more largely, down to 20% left and right, mainly because raw material prices have not yet been linked, if the future with the stability of raw material prices, micro-channel gross margin is expected to return to normal levels.
IAW is the world's leading dishwasher component leader and has a large number of quality customers. In 2012, the company acquired Avico AG in Germany to carry out the layout of Yaweike's business. YAVICO is the world's leading dishwasher parts leader, its products mainly include Omega pumps, heating pipes, water softening systems, distributors, etc., the main application areas are dishwashers, washing machines, coffee machines. Yaweike has many high-quality customers, all of which are well-known brands at home and abroad, including Boss, Jiuyang, Vantage, BSH, Haier, Samsung, Philip and so on.
A change of management helps the business turn a profit. The company's Avico business revenue has declined for three consecutive years since 2017, mainly because the old management is mainly European, the poor insight into the domestic market has caused the product localization adaptability to be weak, and the company's main embedded models are the best-selling domestic models, with little effect. Since 2020, the company has adjusted the organizational structure of Yaweike, unified the Yaweike business to the management of the home appliance plate, carried out executive turnover, created an efficient management team based on domestic personnel, and transferred some supply chain-related factories to China, which has brought remarkable results, and the revenue of the Yaweic business in 2021H1 increased by 55% year-on-year to 550 million yuan, rising to the level of 17 years; at the same time, the profitability has also improved, the gross profit margin has increased to about 20%, and the net profit has been turned into a profit.
4 Financial analysis
4.1 Growth capacity is good and profitability is expected to improve
The company's total assets have been growing for nearly a decade, of which the rapid growth rate in 2013 and 2017 was due to the acquisition and merger of Aweike and Sanhua Auto Zero, and the acceleration of growth since 2019 was mainly due to the continuous increase in the auto zero business.
At the same time, we also see that the growth rate of operating profit and the growth rate of total operating income have basically maintained the same growth trend, with the growth rates of 36.4% and 23.6% in the first three quarters of 2021, respectively, and the rapid growth rate is mainly due to the rapid release of the automobile business in 21 years.
Since its inception, the company's profitability has maintained a stable and good level. Since the establishment of the company's gross profit margin is basically stable at about 25%, the past five years thanks to the scale effect, the gross profit margin has improved, maintained at about 30%, 2018 gross profit margin fell by 2.6pp year-on-year, mainly because copper, aluminum and other raw materials rose sharply led to a decline in the gross profit rate of the auto zero business, refrigeration business, micro-channel business respectively 5.8pp, 4.3pp, 4.5pp, since then has been steadily rising. Gross margin for the first three quarters of 2021 was 27.2%, down 1.5pp from the same period in 2020, mainly due to changes in exchange rates, rising freight rates, and rising raw material prices. The company's net profit has remained at about 10%, and in the past five years, thanks to the increase in gross profit margin, the net profit margin has improved, remaining at about 12%. In the future, as the price of raw materials stabilizes or falls, the company's gross and net profit margins are expected to rebound.
Since 2010, the company's total return on assets has been stable at about 10%, the return on net assets has been stable at 13% left and right, in recent years, the difference between the return on net assets and the return on total assets has continued to widen because the company's asset-liability ratio has continued to increase; the reason for the significant decline in the company's total asset return on assets since 2017 is that the total asset turnover rate has declined, which is mainly due to the company's continuous investment in capital expansion capacity since entering the field of new energy thermal management in 2017. In the future, with the continuous release of new production capacity, the company's total return on assets and return on net assets are expected to improve.
4.2 The solvency is good and the operating capacity is normal
Long-term solvency: Under the premise that the enterprise will not have a debt crisis, a higher asset-liability ratio will help the enterprise to make more full use of financial leverage, and in general, the debt ratio of less than 60% is more reasonable. In the third quarter of 2021, the company's asset-liability ratio was 50.4%, an increase of 10.7pp year-on-year, and we believe that the reasonable increase in the asset-liability ratio reflects the further optimization of the company's asset structure.
Short-term solvency: Usually the larger the current ratio, the stronger the company's short-term solvency, but a large ratio means that the company has more idle funds and does not make full use of capital resources, and generally speaking, the current ratio is the best at about 2. The company's quick ratio has remained at around 2.1 in 2015 and 2.15 in Q3 in 2021, indicating that the company's short-term solvency is strong and the funds are fully utilized.
The company's inventory turnover rate, current asset turnover rate, total asset turnover rate, and accounts payable turnover rate have decreased significantly in the past 17 years, mainly because the proportion of the company's auto zero business after the acquisition of Sanhua Auto in 17 years has continued to increase, while the turnover rate of all auto zero business is low. Compared with the same industry, the company's turnover rate is in the middle and belongs to the normal level.
4.3 Administrative expenses have been reduced and other expenses have been generally stable
The company's management expense ratio (including R&D expenses) has been relatively stable in the past decade, stable at about 10%, and has decreased in the past two years, with 9.4% in the first three quarters of 2021, a decrease of 0.6pp compared with the same period in 20 years, mainly due to the significant improvement in management efficiency after the replacement of management layers in Yaweike's business; the company's R&D expenses have been stable at more than 4%, 4.4% in the first three quarters of 21 years; the company's sales expense ratio has been stable at about 5% in the past 5 years, and 4.6% in the first three quarters of 21 years; Compared with the management expense ratio and the sales expense ratio, the company's financial expenses fluctuate relatively largely, mainly due to the large fluctuation of exchange gains and losses.
Compared with the same industry, the company's various expense rates are in the middle and belong to the normal level.
5 Profit forecast
5.1 Core Assumptions and Revenue Projections
1) Auto Zero Plate: Based on the discussion above, the following assumptions are made:
Suppose that the growth rate of domestic new energy vehicle sales from 21 to 23 years is 167%, 56% and 36%, respectively, and the growth rate of overseas new energy vehicle sales is 40%, 51% and 27% respectively;
Assuming that the bicycle value of the PTC scheme from 21 to 23 years is 5555 yuan, 5500 yuan and 5446 yuan, the value of the heat pump scheme bicycle is 8316, 8150 yuan and 7990 yuan, and the penetration rate of the heat pump scheme is 13%, 18% and 24% respectively;
It is assumed that the growth rate of the company's new energy business in 22 and 23 years is 50%, 10% and 6% of the industry, respectively; it is assumed that the gross profit margin of the auto zero business in 21 years is 24%, and it will gradually recover to 26% and 28% in 22 and 23 years.
2) Refrigeration segment: In terms of profitability, the gross profit margin of the residential business in the refrigeration business in the 21st, 22nd and 23rd years is 31%, 32% and 33%, respectively, and the commercial business is 31%, 32% and 33% respectively; the gross profit margin of the assuming 21-23 year gross profit margin of the Avico business is 20%, 21% and 22%, respectively; the gross profit margin of the assuming micro-channel business is 25%, 26% and 27% in 21 to 23 years, respectively.
Based on the above assumptions, we calculated that the company's operating income from 2021 to 2023 was 15.97 billion yuan, 20.67 billion yuan and 24.63 billion yuan, with a year-on-year growth rate of 31.9%/29.4%/19.2%, and the net profit attributable to the mother was 1.68 billion yuan, 2.41 billion yuan and 3.14 billion yuan, respectively, with a year-on-year growth rate of 15.0%/43.1%/30.3%.
(This article is for informational purposes only and does not represent any of our investment advice.) For usage information, see the original report. ）
Featured report source: [Future Think Tank].