Another expensive lesson.
On September 22, Jifeng Co., Ltd. announced that its holding subsidiary, Grammer Aktiengesellschaft (hereinafter referred to as Grammer), intends to sell 100% of the shares of Toledo Molding &Die LLC. (hereinafter referred to as TMD) at an initial transaction price of $40 million. According to the preliminary accounting of Jifeng shares, the sale of TMD equity will have a significant impact on the company's performance in 2024, with an estimated loss of 280 million yuan to 380 million yuan.
Jifeng said that in view of the weak synergy between TMD's products and other products of the company, in order to focus on the main business and enhance the company's core competitiveness, according to the company's strategic planning and the integration plan to improve the quality and efficiency of overseas assets, in order to enhance the profitability of Grammer in the Americas and improve operating efficiency.
What is curious is that after the TMD stripping landing, can Jifeng really travel lightly as desired?
Auto parts giant "strong man broken wrist"
Founded in 1996, Jifeng Co., Ltd. focuses on the automotive seat track, and is one of the few domestic suppliers that can provide supporting seat headrests and armrests for European, American, Japanese and domestic independent brand OEMs.
In September 2018, Jifeng Co., Ltd. became a "white knight" to acquire the century-old German company Grammer AG (Grammer), which caused a sensation in the industry. However, this "snake swallowing elephant" merger and acquisition also made Jifeng shares suffer.
Affected by various factors such as high overseas labor costs and low self-production rate of Grammer materials, the profitability of Jifeng shares has been significantly suppressed in recent years.
Before the merger and acquisition, the gross profit margin of Jifeng Co., Ltd. remained above 30% and the net profit margin was above 14%. After the consolidation, the company's overall gross profit margin fell to 13%-16%, and the net profit fluctuated above and below the profit and loss line.
In recent years, Jifeng has also continued to promote integration measures, deepening Grammer's cost reduction and efficiency improvement measures in three aspects: supply chain management, VAVE, and factory operation efficiency, in an attempt to improve its overseas profitability.
Some analysts also speculate that "the integration is too violent, which may be an important factor in TMD's huge losses for three consecutive years." Of course, we currently lack more information at hand to verify. ”
According to public information, TMD's predecessor was Toledo Molding &Die Inc., a United States automotive engineering thermoplastic parts company acquired by Grammer on May 22, 2018, with revenue of more than $300 million in 2017, 1,600 employees, 11 factories in United States and Mexico, and an acquisition consideration of around $271 million. With Grammer being acquired by Jifeng shares, TMD has also become a grandson company of Jifeng shares.
In the first two years after the acquisition, TMD's net profit continued to increase, getting better and better year by year, but in 2021, it suddenly suffered a large loss. From 2022 to 2023, TMD's operating income will be 20.4/1.85 billion yuan, and its net profit will be a loss of 1.225/263 million yuan, respectively. In the first half of this year, the net profit of Grammer, a subsidiary of Jifeng Co., Ltd., was a loss of 35 million yuan, of which TMD lost 97 million yuan, which caused a great drag on the company's profit.
There is a view that TMD's main business is in the field of automotive thermoplastic parts, and the synergy with Jifeng's main business (seat armrests, seat headrests, passenger car seats, commercial vehicle seats, etc.) is weak. The divestiture of TMD will help the company focus on its core business and enhance its core competitiveness, and Grammer's profitability and financial position are expected to improve significantly after the divestment.
There is also a view that behind the sale of TMD, a typical phenomenon of cross-border mergers and acquisitions in China's auto parts industry. That is, many auto parts industries in Europe and the United States have entered the sunset industry, but after the acquisition of domestic peers, they can also obtain advanced technology, products and high-quality customers. The problem is that it is particularly difficult to increase gross profit margins if you continue to operate locally after the acquisition, and if you transfer production capacity to China all at once, you will encounter obstacles such as technology transfer, equipment exports, labor employment, and tax transfer. This is a special test of the wisdom and ability of Chinese enterprises to integrate globally.
Grasp the 100 billion track of passenger car seats
According to the data of Guanyan Tianxia, in 2020, the average value of car seats in mainland China (ASP) was 3064 yuan, with the development of lightweight and electric intelligence, the demand for car seats is increasingly diversified, consumers attach importance to safety, coupled with the increase in the penetration rate of electric seat ventilation, memory, heating, massage and other functions, while considering the use of lightweight materials, the average value of China's passenger car seats will increase to 4148 yuan in 2025.
According to the forecast of Gasgoo, in 2022, the domestic passenger car seat market will be 92.5 billion yuan. With the growth of passenger car sales and the increase in the value of seat bicycles, it is expected to reach 112.8 billion yuan in 2027, with a CAGR of 4.03% from 2023 to 2027, which is higher than the growth rate of the global passenger car seat market.
As a leader in China's automotive seat headrest industry, Jifeng has been in the field of automotive seat headrest for nearly 30 years, and its current products cover both passenger cars and commercial vehicles.
In the first half of 2024, although the subsidiary Grammer faced the challenge of revenue reduction due to the decline in production in some overseas automobile markets, a number of projects of the company's strategic emerging business successfully mass-produced and began to contribute revenue, achieving operating income of 11.006 billion yuan, an increase of 5.47% over the same period last year.
Among them, the passenger car seat business delivered 89,000 sets of seat products to customers in the first half of the year, achieving sales of 897 million yuan, compared with 108 million yuan in the same period last year, and net profit attributable to the parent company of -23 million yuan, compared with -61 million yuan in the same period last year.
As of July 31, 2024, the company has a total of 18 designated passenger car seat projects in hand, and its customers cover leading new car manufacturers, traditional luxury car brands, traditional fuel vehicles and domestic leading traditional independent brands.
According to the agency's forecast, the total order amount of the above-mentioned projects of Jifeng shares exceeds 80 billion yuan. According to the company's announced fixed points in 2024, the project life cycle is mostly 5-8 years, so the current orders in hand are expected to achieve an annualized income of 13.08-13.80 billion yuan. Compared with the annual revenue of 655 million yuan in passenger car seat business in 2023, the company has about 20 times the room for improvement in this business.
At present, Jifeng Co., Ltd. is actively expanding the industrial layout and building a passenger car seat production base. In April 2024, the company completed the project of issuing shares to specific targets, raising 1.183 billion yuan, part of which will be used for "the expansion of strategic emerging businesses with passenger car seat business as the core", accelerating the company's product expansion and upgrading, and improving production capacity.
On October 9, Jifeng Co., Ltd. held the second extraordinary general meeting of shareholders in 2024, and deliberated and approved the proposal on changing the implementation subject and implementation location of some fund-raising projects and adding some fund-raising projects.
It is not difficult to find that the fundraising project base can radiate a number of OEMs. Among them, the Hefei base can radiate NIO, Volkswagen Anhui, BYD, Changan, JAC and other automakers, Changchun can radiate Hongqi, Jiefang, Audi new energy, etc., and the Ningbo plant can radiate SAIC, BYD, ZEEKR and other car companies.
As the globalization of the automotive industry matures, automakers require auto parts manufacturers to provide supporting facilities nearby to reduce logistics and inventory expenses, so the fundraising project can not only deliver the original seat customer orders, but also strengthen the connection with other nearby automakers to pave the way for future orders.