Cars, more than expected!
On April 12, the company announced a trade-in plan for consumer goods, which clearly pointed out that it would accelerate the elimination of passenger cars that did not meet the emission standards.
In the car trade-in market, there is a huge hidden demand.
Moreover, car sales exceeded 10 million for the first time in 2009, generally speaking, the life cycle of family cars is 15 years, and a new wave of car replacement is also in 2024. With the simultaneous efforts at both ends, there is no doubt about the growth of the automobile track.
Automakers are highly competitive, so we are turning our attention to the auto parts industry, which has more room for growth. From the performance point of view, in 2023, there is only one auto parts company with a revenue scale of more than 10 billion yuan and a revenue growth rate of more than 50%.
(Data source: Straight flush)
So, what does Xinquan do?
Xinquan Co., Ltd. is a supplier of automotive interior and exterior trim parts, and its business composition is very simple, with products such as instrument panels, door interior guards, bumpers, etc., and is making efforts to car seats, and is constantly expanding product categories.
Dashboard assembly is the largest source of revenue, accounting for 66.05% of revenue in 2023.
Although the automotive interior parts are not as high-tech as LiDAR, air suspension and other components, it undertakes the functions of shock absorption, sound reduction, flame retardant, etc., and is an indispensable part of the automobile body.
Back to the performance, in recent years, the performance of Xinquan shares has grown very fast.
From 2019 to 2023, the company's net profit increased from 183 million to 806 million, an increase of 4.4 times, and its revenue increased from 3.036 billion to 10.572 billion, with a compound annual growth rate of 44.87% and 36.60% respectively.
In addition, in 2023, the net profit growth rate of Xinquan shares will be 71.19%, significantly outperforming the industry as a whole, such as Huayu Automobile, Daimei shares, Changshu Auto Decoration and other leading companies, the growth rate is not 10%, which is difficult to compare.
The core advantage of Xinquan shares comes from the deep binding with large customers.
Looking back at the growth history of most auto parts companies, it is not difficult to find that many companies rely on binding large customers to achieve rapid growth. Moreover, the company's main automotive interior parts, the technical barriers are not high, and they are biased towards consumer attributes, so the sales volume of downstream customers largely determines the performance.
Besides, the strong strength of docking customers also confirms that the company's product quality is good.
In 2023, the top five customers of Xinquan Co., Ltd. are Tesla, Geely, Chery, Ideal, and BYD, and the sales volume of each company is very good, which belongs to the coexistence of high base and high growth rate.
Of course, the core increment still comes from Tesla. In 2021, the company entered Tesla's supply chain, and in 2023, Tesla will become the company's largest customer, driving the company's revenue to exceed 10 billion.
In 2023, the sales volume of SAIC and Volkswagen will be basically the same as that in 2022, and the growth space is limited.
So, what is the future growth of Xinquan shares?
- The logic of both volume and price rise is clear
In terms of price, benefiting from business expansion, the value of product bicycles has continued to increase.
At present, Xinquan's business covers three parts: automotive interiors, automotive exterior decorations and automotive seats.
The interior of the car includes the instrument panel, the door panel assembly, and the exterior includes the bumper, front module, plastic tailgate, plus the car seat back panel, and the value of a single car is about 7,000. Assuming the successful development of the passenger car seat business, the value of a single vehicle can reach 15,000 yuan, which will directly double.
In terms of quantity, from the perspective of downstream customers, the sales of BYD, Tesla, Chery, and Geely must not worry, and the sales of the company's supporting products will follow the rise.
In addition, Xinquan shares continue to expand production capacity.
A total of 2.1 million instrument panel assemblies, 1.2 million door panels, 400,000 seat back panels, and 900,000 bumper assemblies will be added based on production. The factories in Shanghai and Mexico have been designated for projects.
The location is also very interesting, with Tesla and Geely supporting the Shanghai plant, and BYD, Chery and Li at the Changzhou and Hefei plants.
The construction in progress is the equipment and plant under construction, and the fixed assets are the equipment and plant that have been built.
From 2017 to 2023, the sum of Xinquan's construction projects and fixed assets increased from 941 million to 2.707 billion, and its production capacity continued to expand. Xinquan shares generally adopt the business mode of obtaining orders first and then expanding production capacity, and the capacity utilization is relatively sufficient, with a production and sales rate of 95% in 2023.
Second, profitability continues to climb
ROE return on equity, the ratio of net profit to net assets, is the core indicator to measure the profitability of a company.
From 2019 to 2023, the ROE of Xinquan shares has risen rapidly, from 11.53% to 17.73%, far exceeding comparable companies such as Daimei shares, Huayu Automobile, and Changshu Auto Decoration, and higher than high-quality white horses such as Hengrui Pharmaceutical and Yunnan Baiyao.
According to DuPont analysis, there are two main reasons for the rapid increase in ROE = net profit margin × total asset turnover ratio × equity multiplier.
One is the improvement of cost control capabilities.
The company's gross profit margin has not changed much, and even decreased by one percentage point, but the net profit margin has risen instead of falling, mostly due to the effective control of the expense side. As can be seen in the figure below, the company's sales expense rate and management expense rate have decreased significantly, indicating that its ability to refine cost control has been continuously strengthened.
The other is the continuous strengthening of operational capabilities.
From the perspective of the core indicators of operating capacity, the inventory turnover rate of Xinquan Co., Ltd. will increase from 3.28 times per year to 4 times per year from 2019 to 2023, and it is expected that the products will sell faster and faster, and the profitability will be strengthened.
Third, the market share is expected to continue to increase
Companies that provide automotive interior and exterior decoration products generally have fixed OEMs, and the competition pattern is relatively fragmented, with the domestic automotive interior CR3 being only 25.21% in 2022.
However, the market size is still very large, and it is expected that the domestic passenger car interior and exterior decoration market will reach 182.488 billion yuan in 2026.
Benefiting from the increase in the penetration rate of new energy vehicles and the increase in the share of independent brands, the auto parts industry has ushered in a huge wave of domestic substitution.
From 2020 to 2022, the market share of the company's dashboard products increased from 5.7% to 14.4%. Moreover, Tesla's market share with its own brand cars has exceeded 50%, and according to this caliber, there is still a lot of room for improvement in market share.
In summary, Xinquan shares, as the head of the industry, are expected to further increase their market share under the wave of domestic substitution. In addition, the company's profitability continues to strengthen, and it is deeply bound to large customers, and the certainty of continuous growth in performance is still very strong.
Because of this, it has also attracted the attention of many institutions, and by the end of 2023, a total of 421 institutions will rush to raise funds, with a total amount of 14.5 billion.
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Source: Flying Whale Investment Research