Tianyishangjia has grown into a platform-oriented company in the field of new materials. Its sales of metallurgical brake pads have benefited from the continuous growth in demand for post-pandemic travel recovery. At the same time, the accumulated technical expertise has helped the Company make forward-looking expansion in the field of carbon ceramic brake discs. In the photovoltaic (PV) new energy business, the Company has advantages in the collaboration of carbon-carbon (C/C) thermal field and quartz crucibles, allowing it to provide services to downstream customers. The supply and demand of the C/C thermal field system may gradually improve, and the price of quartz crucibles is likely to remain high, which will support the Company’s continued growth in future. We put our 2023E/24E/25E EPS forecasts at Rmb0.80/1.79/2.71. By combining the Company’s historical PE valuation trends and the valuation level of comparable companies, and considering the Company's growth potential, we assign 15x 2024E PE to derive a target price of Rmb26 and initiate coverage with a “BUY” rating.
Starting from rail transit business and gradually growing into a new material platform company.
Established in 2009, Tianyishangjia is a leading supplier of powder metallurgy brake pads for high-speed trains in China and is also engaged in the development of carbon ceramic brake discs based on its technological strength accumulated through the years. With the two products, the Company can expand their applications in fields such as automobiles, new energy vehicles, and rail transit going forward. The accumulation of carbon ceramic technologies has helped the Company smoothly enter the PV carbon market, acquire and integrate quartz crucibles to provide customers with comprehensive solutions for crystal pulling auxiliary materials. At the same time, it actively expands in new application fields such as the processing of lithium battery negative electrode materials, building itself into a platform-based company of green energy new material innovation and industrialization application, fully leveraging the synergy of various businesses in customer structure, technology research and development, raw materials, production capacity, and equipment.
Rail transit: A core supplier of brake pads for the "Fuxing" high-speed train, with excellent competition in high-end products.
With post-pandemic travel demand recovery and higher goals for high-speed rail development across the country, we expect the market size of metallurgical brake pads to reach Rmb1bn/1.4bn/1.8bn respectively from 2023 to 2025. Tianyishangjia was among the first manufacturers to initiate the process of domestic replacement of high-speed train brake pads, and has become the core supplier of powder metallurgy brake pads for the "Fuxing" high-speed train at a speed of 350km per hour. It is also the certified manufacturer with the widest coverage of vehicle models in China. Among them, the barriers to high-end products are relatively high, with a relatively small number of certified enterprises and a more competitive landscape. The Company has been leading the industry for many years with advantages in technology, brand, service, channels, and other aspects. In recent years, its market share in the industry has reached 20% to 23%, and we expect it to increase to around 40% by 2023.
PV new energy: Continuously improving the integrated services of crystal pulling auxiliary materials.
The Company’s two major businesses, C/C thermal field and quartz crucible, collaborate to provide auxiliary material services for downstream crystallization customers. In terms of C/C thermal field, the industry is currently experiencing a significant decline in profits due to abundant supply. The net profit margins of leading companies have generally declined to less than 10%, and second and third-tier enterprises face significant profit pressure. We anticipate that the capacity expansion in the C/C thermal field industry may slow down in the future. With the continuous growth of new PV installations and the increase in carbon system penetration rate, the loose supply and demand pattern may gradually improve; At the same time, the continuous penetration of lithium battery negative electrode materials will also open up new growth space. The Company boasts advantages such as high equipment production efficiency, low unit power consumption, and low manufacturing costs through self-made prefabricated bodies, large-sized equipment, and optimized processes, and its profitability is at a high level in the industry. In terms of quartz crucibles, factors such as large-sized silicon wafers and an increase in the proportion of N-type batteries have led to a continuous increase in demand for high-quality and large-sized quartz crucibles.
However, due to the scarcity of quartz mineral resources and the need for certain accumulation of purification technology, the effective increase in quartz sand supply is limited. We expect that the price of quartz crucibles may remain high in the next 1-2 years. In 2022, the Company quickly became a core supplier in the quartz crucible industry by acquiring Jingyiyang New Material. It has supplied to multiple downstream customers such as Jinko Solar, Gokin Solar and TrinaSolar, and has actively built 20 production lines in Sichuan Jiangyou Industrial Park. We expect the Company's quartz crucible business profit to reach Rmb400mn/800mn in 2023/2024.
Carbon ceramic brake discs: Forward-looking layout with broad future space.
Carbon ceramic brake discs have the advantages of lightweight, high temperature resistance, heat decay resistance, strong environmental adaptability, and low wear rate, which can significantly improve the handling performance of vehicles. We believe that with the reduction of raw material costs and optimization of preparation processes, the permeability of carbon ceramic dynamic discs may gradually increase. The Company's years of experience in the field of metallurgical brake pads can assist in the research and development of carbon ceramic brake discs. Currently, it has the technical capabilities of carbon ceramic brake disc preform weaving, vapor deposition, ceramic infiltration, and other technologies. In the first half of 2023, it formed project partnerships with 19 auto manufacturers and supply chain customers to jointly promote the application of carbon ceramic brake discs in the commercial vehicle field.
Potential risks:
Bad debts in accounts receivable; deteriorating industry competition pattern; fluctuations in raw material prices; lower-than-expected demand for PV; the progress of new production capacity not as expected; the expansion in defense industry business missing expectations.
Investment recommendation:
We expect that the Company's traditional business of metallurgical brake pads will benefit from the recovery of travel demand, while new businesses such as C/C thermal field, quartz crucibles, and carbon ceramic brake discs will support sustained growth in earnings going forward. Combining the Company's development plan and changes in industry supply and demand, we give 2023E-25E EPS forecasts of Rmb0.80/1.79/2.71. By combining the Company's historical PE trends and the valuations of comparable companies, and considering its growth potential, we assign 15x 2024E PE to derive a target price of Rmb26 and initiate coverage with a "BUY" rating.
