As a division of General Motors, more than half of its revenue comes from GM, and its dependence has decreased year by year in recent years.
Author | Peng Yu
Edit | Little white
These two weeks of F1 have begun, the rules have been changed and for the first time there is a Chinese driver Zhou Guanyu to join, so that Feng Yunjun stays up late every weekend to watch very happy, that feels really "Grandpa Qinghui".
In F1, many advanced technologies of the automotive industry have been born.
This year's rules have been greatly changed, and the Meiben team has made a bad start, completely without the appearance of the team's eight consecutive championships. But Feng Yunjun still remembers the "black technology" that the Meiben team tested and demonstrated in the winter of 2020: the dual-shaft steering system (DAS), which was banned for only one year.
Although it is banned from use in F1 competitions, the new invention of the twin-shaft steering system can be described as the "black technology" of the racing world.
The steering system is very important for racing cars, but also for ordinary cars. The following is the leader of the car's steering system that Fengyunjun wants to introduce - Nexteer (01316.HK).
Nexteer was founded in 1906 and experienced a history of being founded by GM. US) acquired, spun off, merged, and finally sold for just $450 million, and was later incorporated into AVIC in 2011.
(Source: Nexteer History)
The century-old company, operated by Chinese capital, was listed in 2013 and had a maximum market capitalization of more than HK$30 billion.
Automotive steering? It sounds unsentimental, no sense of technology. But this realization was wrong to my grandmother's house. Since the invention of the automobile, the steering system has been a key element of safe driving.
A brief history of automotive steering systems
In the initial stage of the automotive industry, the traditional mechanical steering system is to transmit the reaction force of the tire and the ground directly to the steering wheel, without assistance, and it is very difficult to pull the steering wheel, especially when playing in place.
In 1954, the Hydraulic Power Steering System (HPS) was first commercially available. In 1988, electric power steering (EPS) was first assembled into a car. Compared to the original hydraulic power steering system, the electric power steering system is simpler, flexible to assemble and more fuel efficient.
(Source: Autohome, EPS System Structure)
Automotive steering systems make driving easier and safer. The future era of intelligent driving still can't leave it. Steering systems are extremely important for smart driving ADAS systems.
The development of autonomous driving in the future will promote the improvement of steering system technology. In the development route of automotive steering systems, steer-by-wire (SbW) is a better choice for autonomous driving.
Steer-by-wire (SbW) cancels the mechanical connection between the steering wheel and the wheel, obtains the steering wheel angle data through sensors, calculates through the ECU, combines the speed and vehicle driving state to control the wheel angle to meet the needs of L4 level automatic driving.
(Source: House of Automotive Engineers, Steering System Technology Upgrade Route)
In terms of sales caliber, Nexteer's global market share in 2018 was about 19%, ranking second, second only to Japan's JETKT (JETKT, 6473.T), with significant competitive advantage.
(Source: Bloomberg, Global EPS Market Share 2018)
Revenue from GM is declining year by year
Currently, the company mainly produces HPS and EPS. In addition, the company mainly produces steering pipe string and intermediate shaft (CIS) and powertrain (DL).
In 2021, Nexteer's revenue reached 3.36 billion, an increase of 10.8% year-on-year. Among them, EPS is the company's main source of revenue, accounting for about 70% of revenue, an increase from 45% in 2013.
HPS revenue fell from 13% in 2013 to 4% in 2021. In the past, it was the trend for electronic power steering to replace hydraulic power steering. With the development of technology, the steer-by-wire system that can match automatic driving or the future development direction is also a profitable growth point with high certainty.
The company's predecessor as a division of General Motors, the relationship is naturally close, GM has been the company's largest customer, the order volume directly affects the company's revenue and performance.
Before 2015, more than half of the company's revenue came from General Motors. Subsequently, the proportion of revenue has decreased year by year, about 32% in 2021, and the degree of dependence has decreased significantly.
In 2019, the company's revenue from General Motors was about 1.39 billion, down about 250 million year-on-year. It was mainly because of the labor boom between the American Workers' Union (UAW) and General Motors that year, which caused the production of the latter to be interrupted.
In 2020, due to the impact of the epidemic, in addition to the revenue of Zhejiang Shibao (002703.SZ), which increased by 12% year-on-year, the revenue of major enterprises in the industry has declined.
In 2021, Nexteer's revenue growth rate is ahead of comparable companies in its peers.
In addition to GM models, the company's successful production models in 2021 include the Krypton 001, GAC Aion Y, Mercedes-Benz C Series, Haval H9, Volkswagen POLO, Mitsubishi Outlander PHEV, Hummer EV and BMW iX.
(Source: Company Annual Report, 2021 Company New Production Projects)
In 2021, the company's overall gross profit margin was 10.8%, the adjusted operating margin was 2.9%, and the attributable net profit margin was 3.5%.
Since 2019, the company's revenue has declined, and the profit margin has also declined year by year. This was mainly due to the decline in customer order demand and the rise in raw material prices due to inflation brought about by the COVID-19 pandemic.
Gross profit margin is lower than peers, and R&D expense ratio is improving
Since 2018, the gross profit margins of the major players in automotive steering systems have declined. Because the economies of scale of automotive steering systems companies are obvious, the decline in revenue will lead to a sharper decline in gross profit margins.
In the past, the gross profit margin of Nexteer was close to that of Zhejiang Shibao. In 2020, Zhejiang Shibao's revenue increased significantly, driving the gross profit margin to increase by 9 percentage points year-on-year.
In 2021, JTEKT (6473. T), Nippon Seiko (6471. T), Zhejiang Shibao three companies gross profit margin of more than 20%, higher than Nexteer 10 percentage points.
Autonomous driving is the development trend of the future automotive industry, steering system as an important technology to support the future of automatic driving, the company increased investment in research and development. In 2020 and 2021, the company's R&D expense ratio was 5.1% and 3.5%, respectively.
Due to stable downstream customer relationships, Nexteer's selling expense ratio remained stable and low, at around 0.5%.
In recent years, the company's R&D expense ratio has increased, but it is still lower than that of major companies in the industry.
Although the R&D expense ratio is not outstanding, the company's layout in the field of autonomous driving has achieved certain results in recent years. The company's order share of EPS orders for L3 or above autonomous driving functions increased from 21% in 2019 to 32% in 2021.
At the end of 2021, Nexteer had 795 patent applications and 1126 granted patents. Among them, SbW and ADAS/AD patents accounted for 25% (22.7% in 2019 and 21% in 2018), which can be seen in the company's layout in the field of autonomous driving.
Nexteer is at the forefront of the industry in its ADAS/AD related product layout. The company's highly available EPS, which is suitable for L2-L5 self-driving cars, is already being paired with L4 driverless taxis partnered by global Robotaxi giant Waymo and Chrysler.
(Source: Soochow Securities Research Institute, head supplier ADAS/AD related product layout)
Although the gross profit margin is not as good as that of peers, the layout of Nexteer in automatic driving and the layout of related products are in the forefront of the industry.
Debt ratios have declined and ROEs are ahead of their peers
In the past five years, the company's cash cycle has stabilized at around 17 days, and it is basically free to occupy its own funds to do business.
Even in 2020, which has been severely affected by the epidemic, the company's performance has remained stable. Companies can transmit the capital occupation pressure of downstream car brand owners to the upstream.
Nexteer's debt ratio continues to decline. In 2021, the company's asset-liability ratio is 37.6%, and the interest-bearing liability ratio is 2.6%, which is extremely safe.
The decline in Nexteer's financial leverage coupled with the decline in asset use efficiency has led to a continuous decline in ROE. From 2014 to 2018, the company's ROE remained around 25%. In 2021, only 6%.
But fortunately, in the "peer background", Nexteer is still in the forefront of comparable companies in the industry.
Cash flow is abundant, and the dividend ratio is low
The company's main customers are automobile manufacturers or brand owners, although there is a certain account period, but the company's ability to collect money is very good. Since its listing in 2013, the company's net-to-cash ratio has been greater than 1.6.
The company's free cash flow is good, with a cumulative free cash inflow of 1.45 billion yuan since its listing in 2013.
Since its listing in 2013, the company has raised about 300 million yuan in financing and paid 420 million yuan in dividends, achieving positive shareholder returns. Since its listing, the company's cumulative dividends have accounted for 29% of free cash flow and 21% of net profit attributable to the parent.
The company's dividends are less than those of comparable companies. In the past five years, JTEKT dividends have accounted for 55% of net profit attributable to the mother, about 49% of Japan's Seiko, and 27% of the company's.
By the end of 2021, Aviation Industry Corporation of China (Aviation Industry Corporation of China) will hold a cumulative 64.9% stake in Nexteer.
The economies of scale of automotive steering systems companies are obvious, and the company's past revenue decline and profitability decline are obvious.
The electrification of automobiles coupled with the maturity of autonomous driving technology will bring about technological innovation and industry changes in steering systems. The company has deeply laid out the field of automatic driving, and the proportion of EPS orders for automatic driving functions above L3 level has increased year by year.
The company's debt ratio has decreased year by year, with abundant cash flow and good operation. At present, the dividend ratio is low, and the return to shareholders needs to be improved.
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