Investment positives

We initiate coverage on Senssun Weighing Apparatus Group with an OUTPERFORM rating and a target price of Rmb37.49. The firm has established presence in three major businesses via the acquisition of Joyson Quin and become a global leader in the market for luxury car interior parts.

Intelligent cockpit business targets the luxury car market, with luxury carmakers as key clients. Senssun’s intelligent cockpit business mainly covers the marketing and development of functional and decorative parts, and downstream clients mainly include luxury car manufacturers such as BMW, Mercedes-Benz, and Audi. The firm has been designated as the vendor of air conditioner outlet products for Mercedes-Benz C-Class models, and its air outlet business, which serves emerging electric car manufacturers, has made a breakthrough. The firm’s revenue and profitability could improve with the rising penetration rate of high-end vehicle models.

Raising money from capital market to fund the expansion of charging station business; MEB platform to drive steady growth. In February 2022, the firm issued new shares at Rmb28.03 per share via a private placement scheme. It plans to use Rmb600mn of the money raised via the scheme to develop the charging station business, aiming to ensure its charging products also meet standards in countries or regions such as the US, the EU, and Japan, laying the foundation for overseas business expansion. Quin is one of the exclusive charging station vendors of Volkswagen’s new models being developed based on the modular electric drive matrix (MEB). We believe Senssun’s charging station business could witness swift growth driven by the ramp-up of Volkswagen’s MEB-based models.

Automotive interiors show a trend of premiumization, and the firm’s growth prospects are highly visible both in the short term and the long term. The firm was originally engaged in the manufacture of electronic measuring instruments and maintained a solid, leading position in the market. At end-2020, Senssun acquired a 51% stake in Joyson Quin in a bid to expand its automotive intelligent cockpit and new energy vehicle (NEV) charging station business. Revenue has increased notably since the acquisition. According to Joyson Quin’s performance commitment, Quin’s net profit over 2021-2023 should be no less than Rmb190mn, Rmb320mn, and Rmb390mn. The 2021 commitment has been met. In our view, the firm will benefit from the premiumization of the market for automotive interior decorative parts and strong business sentiment in the charging station industry. In our view, a backlog of orders will continue, making it more likely the firm will meet its performance commitments.

How do we differ from the market? The market has not paid enough attention to the Quin business. We believe Quin has a high-quality customer base and technological strength in the high-end interior and smart surface business, and its share of the market may trend up.

Potential catalysts: NEV purchase tax credits give a boost to demand; luxury brands’ share of the auto market expands.

Financials and valuation

Our EPS forecasts are Rmb0.49 in 2022, Rmb1.50 in 2023, and Rmb1.96 in 2024, a CAGR of 100.3%. The stock is trading at 19.9x 2023e P/E. Initiate with OUTPERFORM and a TP of Rmb37.49, corresponding to 25x 2023E P/E, and implying 25% upside.

Risks

Joyson Quin’s failure to fulfill its performance commitment; goodwill impairment; lower-than-expected penetration rate of luxury cars; weaker-than-expected growth of NEV charging station business, and rising raw material prices.