Miles Young: Future Aspects in Heavy Truck Transmissions

The company's main products are commercial vehicle transmission products such as light truck transmissions, mid-car transmissions, heavy truck transmissions, and passenger car transmissions. They are mainly supplied for domestic large-scale automobile plants such as Foton Motor (which accounts for close to 60% of operating revenue), Dongfeng Automobile, and JAC. In the Chinese card transmission market accounted for 72% of the market share.

The company's product structure is gradually optimized. At present, the development of China Card market is slow. While the company does not give up its superior position in the transmission of medium- and low-end light-duty trucks, it also raises the development direction of high-end light truck transmissions, heavy truck transmissions and passenger car transmissions with higher technological content and higher gross profit margins through IPO. The capital investment project will expand the production capacity of light truck transmissions and realize the mass production of industrialized heavy-duty transmissions and passenger car transmissions.

Heavy truck transmission is the main attraction. At present, the company's production focus is gradually tilting to heavy-duty trucks. In the first half of this year, heavy-duty truck transmission revenue has increased by more than 5 times year-on-year, and will be scaled in 2011. Heavy-duty truck transmissions are key spare parts for complete vehicles and have long been monopolized by the industry leader Faith. Beiqi Futian has no direct commercial vehicle transmission manufacturing company and has a long-term and close strategic cooperation relationship with the company. It urgently needs to cultivate the company as an important heavy-duty transmission supplier. At present, the company's heavy-duty truck transmission base is low, and the future heavy volume will be very significant for the company's performance.

The high self-restraint rate of parts brings cost advantages. The main components of the transmission include the housing, pinion (gear and shaft) and synchronizer. The cost of the above three components accounts for more than 60% of the total cost of the transmission. At present, among the manufacturers of commercial vehicle transmissions in China, there are widespread outsourcing of the three major components. Some large and medium-sized commercial vehicle transmission manufacturers can only solve the self-control of some of their parts and components, relying mainly on outsourcing. The company's three major components are very self-manufacturing rate: the shell, pinion and synchronizer's self-manufacturing rate exceed 90%.

"Short-term, long-term-A" investment rating. The company's 10-12 year earnings per share are forecast to be 1.12, 1.58, and 2.12 yuan, corresponding to 28-, 20-, and 15-fold dynamic price-earnings ratios for 10-12 years. Taking into account the company's current low-basis production and sales volume of heavy-duty transmission, will gradually increase in recent years, product structure continues to optimize, the company's performance will be significantly improved, given the company "short-term recommendation, long-term _A" investment rating.