JIFENG AUTO PARTS(603997)：STEADY BREAKTHROUGH IN SEAT ORDERS AND RISING MARKET SHARE

　　Core views:
　　As an interior part linked with a high level of consumer experience, passenger vehicle (PV) seats have gradually come to the fore in the competition among OEMs with a sector-wide reform ahead. We have witnessed a shift of focus in PV seat from function to consumption, alongside a gradual rise in the content per vehicle (CPV). We expect that the global/Chinese PV seat market size will reach Rmb341.3bn/108.7bn in 2025, implying vast growth headroom and high visibility of substitution by independent suppliers. Jifeng Auto Parts is likely to replace foreign suppliers with its prompt response to market and cost control capabilities and expand its customer mix along the path of “startup carmakers - joint ventures - independent brands”. We maintain our 2022E-24E EPS forecasts of Rmb0.01/0.52/0.79. Considering the continuous fulfillment of PV seat orders and full-blown growth upside, and with the industry average valuation of 20x 2023E PE as a reference, combined with an earnings CAGR of 80% over 2022E-24E, high earnings elasticity, and a likely capacity ramp-up of parts for PVs and commercial vehicles (CVs) in 2023, we maintain our target price of Rmb16 on 30x 2023E PE and reiterate the “BUY” rating.
　　Abstract:
　　Acquisition of new orders from NEV firms further evidences the path of customer base expansion. On Oct 10, 2021, Jifeng announced that it had won the first designated project of PV seats, marking the breakthrough of its PV seat business from 0 to 1. On Jul 12, 2022, the Company won an order from a NEV OEM, further accelerating its coverage expansion in PV seats. On Nov 25, 2022, it once again announced that it had become a supplier of seat assembly products for a NEV OEM. The project lasts for five years with a total investment of about Rmb1.8bn-2.5bn. The establishment of cooperative relationship with the three NEV OEMs marks Jifeng’s CPV jumping from Rmb600 to Rmb6k and indicates the recognition from OEMs on its R&D capability and cost performance.
　　The focus of PV seats are shifting from functional parts to the consumption upgrades of core systems. NIO’s ES8 created "Queen’s shotgun": The PV seat has a maximum backrest angle of 160°, and provides leg support and foot support to achieve a semi reclining sitting position. The seat can slide backward and move to the second row to facilitate interaction with the rear row. Li Auto’s L9 emphasizes caring support akin to family love: The whole seat is built with standard electric adjustment/heating, and the front two rows are equipped with ventilation/massage functions to effectively alleviate the travel fatigue caused by long sitting. Some seats are equipped with four-way electric leg support, nap mode, electric recline/one button reset and folding tables, etc. The second row supports 4D vibration effect, which, combined with sound and dynamic atmosphere light, will bring a richer immersive audio-visual entertainment experience in the back row and create relaxed and caring family atmosphere. Huawei’s AITO M7 is equipped with weightless seats: The seat can maintain thigh and torso at an angle of 113° to evenly distribute the body weight on back, hip and legs via ergonomic design, intelligent suspension lifting mechanism and four-way leg support adjustment, which can minimize blood supply pressure to the heart and provide first-class-level sitting experience. NEV startups have achieved breakthroughs in driving experience and redefined PV seats with a demonstration effect. We expect that PV seats will be upgraded with the seat functions of high-end models gradually becoming more affordable, hence enhanced consumptiveness.
　　The PV seat industry sees high visibility of import substitution backed by a large market size and favorable industry landscape. We estimate the CPV of PV seats at about Rmb5k and expect that with the improvement of PV seat configuration and upgrades towards premiumization, the CPV will be further increased to Rmb6k-7k. We forecast the global PV seat market to reach Rmb321.6bn/341.3bn in 2023/2025, indicating vast growth headroom. The industry pattern of PV seats is concentrated. According to Marklines data, the CR5 of PV seats reached 92% in 2021, and the global market is dominated by foreign brands, including Adient, Lear, Faurecia, Toyota Boshoku and Magna, etc. with high industry barriers. Independent suppliers are likely to ride on the tailwinds of growing NEV startups to cater to the demand for product customization from downstream customers and prompt response to expand market share, leveraging the continuous improvement of technology and service capabilities.
　　Potential risks: The shipment from downstream customers missing expectations; sustained high costs of upstream raw materials; disappointing progress of new order intakes of PV seats; the consolidation with Grammer falling short of expectations; new product R&D and promotion failing expectations.
　　Investment recommendation Jifeng is a leading supplier of PV seat headrests in the world. We expect that the mass production of its PV seat business will be materialized in 2023, which will gradually contribute to the Company’s earnings. We maintain our 2022E-24E EPS forecasts of Rmb0.01/0.52/0.79. The Company has ventured into PV seats and won orders from NEV startups, alongside continuous customer base expansion, which creates full-blown growth upside. With the 2023E industry PE averaged at 20x as a reference, and considering a likely earnings CAGR of 80% over 2022E-24E, we see high earnings elasticity. Besides, the Company may ramp up its capacity of supporting parts for PVs and CVs in 2023. Therefore, we maintain our target price of Rmb16 on 30x 2023E PE and reiterate the “BUY” rating.
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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。