ZHONGDING SEALING PARTS CO. LTD.(000887)：A QUALITY COMPANY SPECIALIZING IN INTELLIGENT CHASSIS

Investment Thesis
As a domestic leader in non-tire rubber, Zhongding expands vertically via global M&A such as acquisitions of KACO, WEGU, AMK, TFH, which allows the company to gain access to core technologies such as ball joint assembly and air supply unit, and drives localization. The company business ranges from sealing system, thermal management system, lightweight to air suspension, generating significant synergies.
Two core pillar of business delivering stable growth: Sealing business has been the core for the company which gradually gained market leadership through overseas M&A. It acquired US-based COOPER and ACUSHNET, which paves the way for Zhongding to enter into high-end sealing parts manufacturing. In 2014, Zhongding acquired German- based KACO to pivot towards high-end oil-sealing and new energy electric motor sealing.
The company has been actively expanding its footprint in the sealing business for new energy vehicles, improving its ASP from RMB600-900 for traditional ICE to RMB800- 1000 for NEV. Its clients include NIO, SAIC and other leading NEV brands. Rubber-based shock absorber business: Zhongding acquired WEGU to strengthen its rubber-based shock absorption technology. WEGU specializes in silicon-based vibration absorption technology which provides an efficient way to limit vibration in the automobile industry.
Three growth drivers gaining traction: Zhongding is accelerating its thermal management business through acquiring TFH from Germany. ASP for thermal management system on NEV is 3-5 times higher compared to ICE, reaching RMB1,000- 1,600 as NEV requires better temperate control on its battery module. In 2021, this segment contributed RMB435mn revenue (+28.1% YoY). Zhongding masters the core technology related to air supply unit via acquiring AMK which serves high-end clients including Volvo and Benz. The domestic assembly line for the air supply unit has already completed, generating RMB28mn revenue in 2021. It further enhanced the competitiveness for its air suspension products through acquiring Bridgestone.
Earnings Forecast & Rating：1) Sealing business: The company masters dynamic seal, actively deploys new energy business, and increases ASP; 2) Shock-absorbing rubber business: The company deeply cultivates automobile shock-absorbing business, realizes localization by overseas M&A; 3) Thermal management+lightweight +air suspension benefits from the increase in the penetration rate of NEV. Based on the above key assumptions, we predict that the company’s 2022/2023/2024 total revenue to be RMB14.3/16.2/19.3bn (+14%/+13%/+19% YoY), and 2022/2023/2024 net profit forecast are RMB1.17/1.41/1.63bn (+21%/+21%/+15% YoY), corresponding to 2022/2023/2024 EPS at RMB0.9/1.1/1.2 and 2022/2023/2024 PE at 26/21/18x. We initiate a “Buy” rating.
Risks: Less-than-expected production and sales of passenger vehicle, Lower-than- expected air suspension promotion.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。