2021 results miss our expectation

    Bethel Auto Safety Systems (Bethel) announced its 2021 results: Revenue rose 14.8% YoY to Rmb3.49bn, attributable net profit grew 9.3% YoY to Rmb505mn, and recurring net profit rose 5.8% YoY to Rmb431mn. In 4Q21, revenue increased 14.5% YoY (+47.8% QoQ) to Rmb1.16bn, attributable net profit fell 15.8% YoY (+6.4% QoQ) to Rmb136mn, and recurring net profit dropped 18.9% YoY (+15.4% QoQ) to Rmb114mn. The results miss our expectation due to raw material price hikes and earnings pressure facing downstream clients amid chip shortage.

    Trends to watch

    Revenue increased in 2021 as expected; multiple factors weighed on profit; sales growth of electric control products beat; strong ability to pass on cost hikes. In 2021, sales volume of smart electric control products increased 57.2% YoY to 1.3mn units, higher than the market’s expectation. We think the firm has established good reputation in the fields of electronic parking brake systems (EPB) and wire-controlled brake systems (WCBS). Looking ahead, we are upbeat on the firm’s client base expansion. In 2021, gross margin (GM) fell 2.24ppt YoY to 24.2%. Specifically, GM fell 2.70ppt YoY to 22.2% for mechanic brake systems, but edged up 0.98ppt YoY to 24.43% for smart electric control products. The decline in overall GM is attributable to rising prices of raw materials such as aluminum, in our view. We think the slight GM growth of electric control products reflect the firm’s sound ability to pass on cost hikes.

    Revenue growth of new projects encouraging; capacity expansion on track. The firm’s new projects contributed lifecycle revenue of Rmb11bn, implying an annual average revenue contribution of around Rmb2.5bn in 2021. It added several new projects in 2021, including 83 EPB projects, 11 WCBS projects, 9 advanced driver assistance systems (ADAS) projects, and 2 electric tailgate system projects. We expect its WCBS capacity expansion to accelerate thanks to the import substitution and the rapid growth in the sales volume of alternative-fuel vehicles (AFV). Meanwhile, the firm’s newly developed ADAS and electric tailgate system businesses entered the stage of industrialization. We think this reflects the firm’s effective product development. Based on the new projects added and a positive outlook for future demand, the firm plans to expand production capacity in 2022. In particular, it plans to build new WCBS production lines with a total capacity of 300,000 units, EPB caliper assembly lines with a total capacity of 500,000 units, and dual-motors driven EPB caliper assembly lines with a total capacity of 200,000 units.

    Enabling R&D of wire-controlled chassis systems via M&A. Bethel and Realink World (a subsidiary of Chery Technology) plan to buy 45% and 20% stakes in Zhejiang Wanda Automotive Steering Machine (Zhejiang Wanda) with own funds. Zhejiang Wanda is a producer of steering gears and columns. Its revenue in 11M21 was about Rmb750mn, with net profit of Rmb17mn. The overall valuation of Wanda Company is Rmb446mn, implying an 11.69% premium over its net asset value. We expect the acquisition to help Bethel expand to the wire-controlled steering business and bolster the R&D of wire-controlled chassis systems.

    Financials and valuation

    Given chip shortage and rising aluminum prices, we cut our 2022 earnings forecast 6.5% to Rmb712mn, and introduce our 2023 earnings forecast of Rmb978mn. The stock is trading at 34.1x 2022e and 24.8x 2023e P/E. We maintain an OUTPERFORM rating and raise our target price 13.8% to Rmb74 as we shift to SOTP valuation, considering the strong growth potential in EPB, WCBS and ADAS businesses. Our target price implies 43x 2022e and 31x 2023e P/E with 24.6% upside.

    Risks

    Recovery of chip supply slower than we expected; raw material prices higher than we expected.

更多精彩大盘资讯敬请期待！