On August 30, Kailong Hi-Tech (300912. SZ) disclosed its 2023 half-year report. In the face of many challenges such as the continued pressure of the global economy and the slow repair of market demand, Kailong Hi-Tech adheres to the principle of seeking progress while maintaining stability, strengthens resource coordination, actively optimizes the supply chain and product structure, strengthens the linkage between products and sales, and improves operational efficiency, and the company's business performance has achieved substantial growth.
According to the half-year report, in the first half of 2023, Kailong Hi-Tech achieved operating income of 589 million yuan, a year-on-year increase of 57.84%; The net profit attributable to the parent company was 6.9681 million yuan, a year-on-year increase of 121.97%; As of June 30, 2023, the company's total assets reached 1.787 billion yuan, a year-on-year increase of 15.10%; The owner's equity attributable to the parent company was 804 million yuan, a year-on-year increase of 1.54%. This series of excellent financial data shows the steady development trend and strong development momentum of Kailong Hi-Tech.
With the further recovery of the commercial vehicle industry in the second half of the year and the implementation of China VI emission standard 6b stage (hereinafter referred to as "China VIB"), Kailong Hi-Tech, as one of the earliest enterprises in China to develop exhaust gas aftertreatment, is expected to fully benefit from the localization of exhaust aftertreatment equipment by virtue of the announcement barriers and supply chain advantages, increase its market share, and further open up growth space.
The recovery of the commercial vehicle industry boosted performance
The internal combustion engine exhaust pollution control industry where Kailong Hi-Tech is located belongs to the energy-saving and environmental protection industry, and its development is strongly supported by the national industrial policy and environmental protection policy. The company's business covers the research and development, production and sales of air pollution control equipment and new energy thermal management system, mainly including selective catalytic reduction system, particle capture system, recrystallized silicon carbide, new energy CNG engine exhaust aftertreatment system, automobile inspection and testing, industrial VOCs exhaust gas treatment, new energy bus heating system, etc.
Since most of the final downstream customers of Kailong's leading products are commercial vehicle companies, the production and sales of commercial vehicles will largely determine the demand for the company's products. In 2023, driven by a package of policies such as China's economy and expanding domestic demand, the domestic commercial vehicle market will gradually return to positive growth out of the low operating range.
According to production and sales data released by the China Association of Automobile Manufacturers, from January to June 2023, China's commercial vehicle production and sales reached 1.967 million units and 1.971 million units, up 16.9% and 15.8% y/y, respectively. Among the main commercial vehicle segments, truck production and sales from January to June totaled 1.74 million units and 1.748 million units, up 15.5% y/y, and sales totaled 14.8% y/y. From January to June, bus production totaled 227,000 units, up 28.9% y/y, and sales totaled 223,000 units, up 24.3% y/y.
Benefiting from the recovery of the commercial vehicle industry, Kailong Hi-Tech's performance in the first half of 2023 achieved high growth. With the continuous improvement of the economic situation and the new round of policy dividends, the manufacturing boom level continues to improve, the moderate recovery of the macroeconomy in the second half of the year will gradually be transmitted to the automobile market, the commercial vehicle market is expected to continue to recover, and Kailong Hi-Tech may continue to benefit.
In addition, in the field of industrial VOCs waste gas treatment, due to the characteristics of high concentration and high intensity of VOCs emissions from industrial emission sources, which cause great harm to the ecological environment, Kailong Hi-Tech will provide systematic and diversified solutions, design industrial VOCs treatment projects, and help the production and manufacturing links to be green and healthy.
The new energy bus heating system is mainly composed of heater, radiator, defroster and pipeline system, which is used for thermal management such as interior heating, defrosting and power system heat dissipation, mainly used in buses, buses and other fields.
Announcement barriers to create a moat for the main business
The product characteristics of Kailong Hi-Tech itself have also created a broad moat for its main business, laying the foundation for steady growth in performance.
According to the announcement, Kailong's leading product diesel engine selective catalytic reduction system (SCR system) and its core components (such as catalytic converters, carriers, catalyst coatings, etc.) must be matched with the engine before being listed in the procurement catalogue by downstream OEMs and OEMs. The whole matching process generally takes about 1.5-2.0 years, once the after-treatment products are matched with the engine or new car, and the environmental protection compliance information is disclosed, it will form a more stable supporting relationship with the main engine and the automaker. Therefore, there are strong announcement barriers for Kailong's leading products.
In addition, Kailong's technological research and development advantages also enable it to quickly seize market opportunities. After nearly 20 years of R&D and innovation, Kailong Hi-Tech has built a complete industrial chain of core components such as "honeycomb ceramic carrier, silicon carbide carrier, catalyst, urea injection pump, electronically controlled nozzle, system integration, mixer packaging, urea level, quality sensor", and realized independent and controllable key technologies to ensure industrial safety.
The automotive exhaust aftertreatment industry is expanding at full speed
According to the "Announcement on Matters Related to the Implementation of China VI Emission Standards for Automobiles" jointly issued by the Ministry of Ecology and Environment, the Ministry of Industry and Information Technology and other departments, from July 1, 2023, the China VI emission standard 6b stage will be fully implemented nationwide, and the production, import and sale of vehicles that do not meet the China VI emission standard 6b stage are prohibited. Following the launch of China VI Phase A in July 2020, after three years, vehicle emission control has finally entered a new stage.
Since the implementation of China VIB will increase the cost of exhaust gas aftertreatment, the cost sensitivity of downstream enterprises will be improved, and domestic brands have a comparative advantage in cost performance; Moreover, the commercial vehicle market concentration is high, and the self-owned brand enterprises are the main ones, and the acceptance of domestic brands is high, which is conducive to the localization of exhaust gas aftertreatment equipment.
According to the semi-annual report, the first set of self-developed post-processing products of China IV, China V and China VI were all born in Kailong Hi-Tech. The diesel engine exhaust aftertreatment system (DOC+DPF+SCR+ASC) independently developed by Kailong Hi-Tech that meets the China VIB standard, supporting the carrier and catalyst independently developed and produced by Lanfeng Technology, a wholly-owned subsidiary, that meets the China VI standard, has been successfully used in the client engine, passed the inspection of the emission inspection agency, completed the disclosure of environmental protection compliance information and applied to the heavy trucks produced by the company's customers, and became China's first diesel engine exhaust aftertreatment system that meets the China VIB standard with domestic carriers and catalysts.
With the advent of the "China VIB" standard era, China's automobile exhaust aftertreatment industry has officially entered the golden cycle. In particular, as the market demand for related products in various sectors of the industrial chain continues to soar, and the localization process is comprehensively accelerated, Kailong Hi-Tech will usher in new development opportunities.