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Company Research
Equity Research
July 14, 2022
Hengdian Group Tospo Lighting
Expanding into auto electronics; new growth
driver could trigger re-rating
Yawei TANG
Shanwen LUO
Aaron Wei HE
SAC Reg. No.: S0080521110003
yawei.tang@cicc.com.cn
SAC Reg. No.: S0080121080251
shanwen.luo@cicc.com.cn
SAC Reg. No.: S0080512010001
SFC CE Ref: BBH812
wei3.he@cicc.com.cn
Initial Coverage
Initiate with OUTPERFORM
Ticker
Rating
*
603303.SH
Target Price
OUTPERFORM
Rmb19.00
Ticker
603303.SH
Last close
Rmb15.41
52wk price range
Rmb19.03-9.81
Market cap (bn)
Rmb7
Investment positives
We initiate coverage on Hengdian Group Tospo Lighting (Tospo) with an
OUTPERFORM rating and a target price of Rmb19.00, implying 25.0x
2022e P/E and 20.1x 2023e P/E.
Why an OUTPERFORM rating?
►
Strong exports of traditional general lighting products: China’s
lighting industrial cluster has become highly competitive after light
emitting diode (LED) products started to boom. China now has more
than 50% share of the global illuminating appliance market. The
country’s lighting supply chain has recovered rapidly after COVID-19
was brought under control. Chinese exports of illuminating appliances
expanded 14.2% YoY to about Rmb410bn in 2021, implying a 12.1%
CAGR over 2016–2021, outpacing domestic market growth. Tospo is
a leading exporter of lighting products, with both exports and
production capacity among the largest in the industry. The firm’s
revenue from exports reached Rmb4.1bn in 2021. It has entered into
a partnership with global customers such as Philips and Panasonic.
Tospo has strong customer resources and high production efficiency.
The lighting industry now has a low concentration ratio. However, we
expect the competitive landscape to improve, as elevated ocean
freight rates and cost pressure may accelerate the exit of mid- and
small-sized firms.
►
Domestic commercial lighting business to enhance profitability:
The commercial lighting business has a larger market size than the
household lighting business. It needs to meet higher requirements for
product customization, systems, and service quality. As such,
commercial lighting products have high added value and gross
margin. Tospo’s commercial lighting products are now used mainly in
streets, landscaping projects, and commercial buildings. The firm’s
commercial lighting business remains small, contributing only 5.2% of
the firm’s revenue in 2021. However, its gross margin was about
3.0ppt higher than that of the household lighting business. We expect
the commercial lighting business to enhance Tospo’s earnings.
►
Auto parts business to become a second growth driver: Amid
increasing penetration of smart auto lighting products, Tospo entered
the auto electronics market by cooperating with Panasonic to produce
Y-axis: Relative Value (%)
603303.SH
CSI 300
130
115
100
85
70
55
Jul-2021
Sep-2021
(Rmb mn)
Dec-2021
Mar-2022
Jun-2022
2020A
2021A
2022E
Revenue
4,508
5,273
5,961
2023E
7,030
(+/-)
6.2%
17.0%
13.1%
17.9%
Net profit
342
328
363
450
(+/-)
10.4%
-4.2%
10.7%
24.1%
Recurrent net income
262
234
363
451
5.1%
-10.8%
55.1%
24.1%
EPS
0.72
0.69
0.76
0.94
BPS
6.06
6.49
6.91
7.53
DPS
0.25
0.34
0.33
0.40
CPS
0.85
-0.22
0.76
0.82
P/E
21.5
22.4
20.3
16.3
P/B
2.5
2.4
2.2
2.0
13.0
15.7
12.3
10.0
Dividend yield
1.7%
2.2%
2.1%
2.6%
ROAA
8.0%
6.9%
7.0%
7.9%
ROAE
12.3%
11.0%
11.4%
13.1%
(+/-)
EV/EBITDA
Source: Wind, Bloomberg, corporate filings, CICC Research
For analyst certification and other important
disclosures, refer to the Disclosure Section
Please see "Important Legal Disclosures" in the final section of this research report. This research report is not intended to be, and should not be taken to be,
the provision of financial advice in relation to the securities covered, or an inducement to deal in such securities. The information in this research report is not
updated and may be stale and thus unsuitable for trading purposes. This research report is intended only to provide information for the purpose of strategic
planning, market sector analysis, or other corporate or accounting purposes. This research report may not be forwarded without our prior written consent and
may not be circulated or distributed to any persons in such jurisdictions where to do so would constitute a violation of the relevant laws of such jurisdiction.
1
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LED drive modules (LDM). The company also expanded into
controllers of battery management systems (BMS). The efforts
enriched the firm’s product portfolios. Tospo’s revenue from the auto
parts business surged 191% YoY to Rmb281mn in 2021, much faster
than the growth of its main business. In its 2021 annual report, Tospo
estimated existing auto lighting projects and orders for vehicle
on-board controllers from fixed customers had a combined value of
about Rmb3bn. The firm expected these projects and orders to be
completed in 5–10 years. We think the company may further explore
the buoyant auto electronics market by cooperating with Porsche and
Panasonic. We believe the auto parts business will drive revenue
growth.
How do we differ from the market? The market believes Tospo’s general
lighting business has low profitability and does not look promising.
However, we think the company enjoys strong advantages in
manufacturing and scale. The firm’s earnings per employee are one of the
highest in the industry. In addition, we think exploration of the commercial
lighting business and falling raw material prices will also boost the firm’s
profitability.
Potential catalysts: Above-industry earnings growth; positive surprise in
auto parts business.
Financials and valuation
We expect Tospo’s 2022–2023 EPS to be Rmb0.76 and Rmb0.94, implying
a 17.3% CAGR over 2021–2023. The stock is trading at 20.3x 2022e and
16.3x 2023e P/E. As a leading global supplier of lighting products, the
company maintains close cooperation with overseas core customers. It
plans to leverage its capabilities in lighting solutions to develop its domestic
commercial lighting business, and has also expanded into the auto parts
business. We believe this factor will help the company create a second
growth driver. We are upbeat on its long-term development. We initiate
coverage on Tospo with an OUTPERFORM rating and a target price of
Rmb19.00, implying 25.0x 2022e and 20.1x 2023e P/E and offering about
23% upside.
Risks
Volatile raw material prices; disappointing expansion of auto parts
business; accounts receivable impairment related with commercial lighting
business.
Please see "Important Legal Disclosures" in the final section of this research report.
2
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Financial summary
Financial statement
(Rmb mn)
2020A
Income statement
Revenue
Operating costs
Business tax and surcharges
Selling expenses
Administrative expenses
Finance costs
Others
Operating profit
Non-operating income and expense
Profit before income tax
Income tax
Minority interest
Net profit
Recurrent net income
EBITDA
Balance sheet
Cash and bank balances
Trade and bill receivables
Prepayments
Inventories
Other current assets
Total current assets
Fixed assets and CIP
Intangible assets
Total non-current assets
Total assets
ST borrowings
Trade and bill payables
Other current liabilities
Total current liabilities
LT borrowings and bonds payable
Other non-current liabilities
Total non-current liabilities
Total liabilities
Shareholders' equity
Minority interest
Total liabilities & equity
Cash flow statement
Net income
Depreciation & amortization
Change in working capital
Others
Cash flow from operations
Capital expenditure
Others
Cash flow from investing
Equity financing
Bank borrowings
Others
Cash flow from financing
Foreign exchange gain (loss)
Net changes in cash
2021A
2022E
2023E
4,508
5,273
5,961
7,030
3,650
4,548
5,030
5,890
16
12
14
16
145
151
179
211
138
162
179
211
22
-41
-36
-38
-126
-100
-169
-201
320
295
404
502
66
70
0
0
386
365
404
502
42
37
41
51
1
0
0
0
342
328
363
450
262
234
363
451
471
401
504
613
1,333
1,140
1,182
1,285
1,169
1,607
1,808
2,132
39
28
31
36
690
823
910
1,065
208
231
241
258
3,439
3,829
4,172
4,776
679
766
766
769
334
413
443
470
1,012
1,180
1,209
1,239
4,451
5,008
5,381
6,015
70
12
0
0
1,225
1,440
1,638
1,892
251
377
388
474
1,546
1,829
2,027
2,365
0
0
0
0
2
28
4
4
2
28
4
4
1,548
1,857
2,030
2,369
2,889
3,096
3,295
3,590
14
55
56
56
4,451
5,008
5,381
6,015
342
328
363
450
65
76
136
149
-75
-184
-114
-201
73
-325
-23
-10
405
-104
362
389
-160
-157
-151
-164
684
164
0
0
524
8
-151
-164
0
0
0
0
-34
-58
-12
0
-105
-400
-157
-122
-139
-459
-169
-122
0
22
0
0
790
-533
42
103
Financial ratios
2020A
2021A
6.2%
17.0%
13.1%
17.9%
4.9%
-7.7%
37.0%
24.1%
9.7%
-14.9%
25.9%
21.6%
10.4%
-4.2%
10.7%
24.1%
5.1%
-10.8%
55.1%
24.1%
18.7%
13.5%
15.4%
16.0%
7.1%
5.6%
6.8%
7.1%
10.4%
7.6%
8.5%
8.7%
7.6%
6.2%
6.1%
6.4%
5.8%
4.4%
6.1%
6.4%
2.22
2.09
2.06
2.02
1.78
1.64
1.61
1.57
0.86
0.62
0.58
0.54
34.8%
37.1%
37.7%
39.4%
Growth ability
Revenue
Operating profit
EBITDA
Net profit
Recurrent net income
Profitability
Gross margin
Operating margin
EBITDA margin
Net margin
Recurrent net margin
Liquidity
Current ratio
Quick ratio
Cash ratio
Liability / asset
Net debt / equity
2022E 2023E
net cash net cash net cash net cash
Return
RoA
RoE
Per-share data
EPS (Rmb)
BPS (Rmb)
DPS (Rmb)
Cash flow per share (Rmb)
Valuation
P/E
P/B
EV/EBITDA
Dividend yield
8.0%
6.9%
7.0%
7.9%
12.3%
11.0%
11.4%
13.1%
0.72
0.69
0.76
0.94
6.06
6.49
6.91
7.53
0.25
0.34
0.33
0.40
0.85
-0.22
0.76
0.82
21.5
22.4
20.3
16.3
2.5
2.4
2.2
2.0
13.0
15.7
12.3
10.0
1.7%
2.2%
2.1%
2.6%
Source: Corporate filings, CICC Research
Company description
Hengdian Group Tospo Lighting is an original equipment manufacturer (OEM) of lighting products for overseas firms, and it was listed in 2017.
Its core customers include global lighting firms such as Philips and Panasonic. Overseas business contributed 79% of Tospo’s revenue in
2021. In terms of export size, Tospo is a tier-1 lighting-product exporter in China. Tospo expanded into auto parts in 2018. The auto parts
business contributed revenue of Rmb281mn in 2021.
Please see "Important Legal Disclosures" in the final section of this research report.
3
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Contents
Executive summary ................................................................................................................................................... 6
Company profile .................................................................................................................................................... 6
Investment highlights ............................................................................................................................................ 8
Earnings forecasts and valuations ........................................................................................................................ 9
Risks ................................................................................................................................................................... 12
General lighting: Tospo is a leading lighting-product exporter, and explores specific submarkets ............... 13
Chinese lighting firms become more competitive than before amid popularity of LED products ........................ 13
Tospo: A leading lighting-product exporter with strong production advantages .................................................. 14
Tospo explores domestic market, and has expanded into lighting products for automobiles and commercial
facilities ............................................................................................................................................................... 17
Auto parts: Tospo focuses on auto electronics and intends to explore the global market by cooperating with
Panasonic ................................................................................................................................................................. 19
The segment for LED drive modules benefits from rising demand for intelligent auto lighting products and
increasing penetration of LED auto lamps .......................................................................................................... 19
Tospo likely to expand into auto lighting by leveraging its expertise in LED drive modules ............................... 21
Tospo has expanded into BMS controllers; auto parts business to become a second growth driver ................. 23
Figures
Figure 1: Tospo’s historical milestones ........................................................................................................................ 7
Figure 2: Tospo’s ownership structure (Dec. 31, 2021)................................................................................................ 8
Figure 3: Historical and forecasted revenue breakdown ............................................................................................ 10
Figure 4: Earnings forecasts .......................................................................................................................................11
Figure 5: Valuations of comparable companies ......................................................................................................... 12
Figure 6: Size of China’s illuminating appliance industry ........................................................................................... 13
Figure 7: Chinese exports and domestic sales of illuminating appliances ................................................................. 13
Figure 8: LED lighting industry chain, and Chinese firms in the industry chain ......................................................... 14
Figure 9: Chinese lighting firms and their revenue from overseas markets ............................................................... 15
Figure 10: Tospo’s revenue from domestic and foreign markets ............................................................................... 15
Figure 11: Sales volume of Chinese lighting firms ..................................................................................................... 16
Figure 12: Chinese lighting firms, and their product quality certificates by region ..................................................... 16
Figure 13: Per-capita income at Chinese lighting firms ............................................................................................. 16
Figure 14: Per-capita profit at Chinese lighting firms ................................................................................................. 16
Figure 15: Tospo’s revenue from the top five customers as a percentage of its total revenue .................................. 17
Figure 16: Tospo’s major customers .......................................................................................................................... 17
Figure 17: Tospo’s efforts on business expansion ..................................................................................................... 18
Figure 18: Guangdong TUS Lighting’s revenue and net margin ................................................................................ 18
Figure 19: Revenue and gross margin of Tospo’s project construction business ...................................................... 18
Figure 20: A glance at adaptive front-lighting system (AFS) ...................................................................................... 19
Figure 21: Changes in penetration rates of each type of auto lighting ....................................................................... 20
Please see "Important Legal Disclosures" in the final section of this research report.
4
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Figure 22: Global auto lighting industry’s competitive landscape in 2020 ................................................................. 20
Figure 23: The number and value of auto lighting controllers per vehicle has been rising amid auto lighting upgrading
................................................................................................................................................................................... 20
Figure 24: Estimated size of auto lighting controller market ...................................................................................... 21
Figure 25: Tospo’s revenue from auto lighting business ............................................................................................ 22
Figure 26: Tospo’s net profit from auto lighting products ........................................................................................... 22
Figure 27: Tospo has built the highest-grade clean workshop for lighting products in China .................................... 22
Figure 28: Shanghai Liangqin’s customers ................................................................................................................ 23
Figure 29: Tospo may expand into auto lighting by leveraging its expertise in LDM.................................................. 23
Figure 30: Details on Tospo’s cooperation with Wangxiang ....................................................................................... 24
Figure 31: Porsche and Audi’s planned measures on accelerating transformation towards electric vehicles ........... 24
Figure 32: P/E ............................................................................................................................................................ 24
Figure 33: P/B ............................................................................................................................................................ 24
Figure 34: Tospo’s financial statements and main financial ratios ............................................................................. 25
Figure 35: Valuations of comparable companies ....................................................................................................... 26
Please see "Important Legal Disclosures" in the final section of this research report.
5
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Executive summary
Company profile
A leading exporter of lighting products with diversified business lines: Tospo was
founded in 1996 and launched an IPO in 2017. It focuses on R&D, production, and sales of
lighting products and auto parts. Tospo sells its products mainly through exports. The firm’s
major customers include globally well-known companies such as Philips and Panasonic. In
2018, Tospo expanded into lighting products for automobiles and commercial facilities. In
2021, the company’s auto parts division decided to focus on vehicle on-board controllers
(VOBC) and auto lighting products. Meanwhile, it launched a development strategy in 2021 to
expand the household lighting business, bolster the commercial lighting business, and
become a professional supplier of auto parts.
Tospo’s business lines include general lighting and auto parts. The company is
accelerating expansion of its auto parts business. This business now focuses on R&D,
production, and sales of auto lighting products, including LED drive modules. The company
announced in August 2021 that it became a fixed supplier of BMS controllers to Wangxiang1.
In its 2021 annual report, Tospo estimated existing auto lighting projects and VOBC orders
from fixed customers had a combined value of about Rmb3bn. The firm expected these
projects and orders2 to be completed in 5–10 years.
1
2
The firm stated that Wangxiang would use its BMS controllers to produce auto components for Porsche and Audi’s select models.
The projects and orders are related to major automakers such as Porsche, Audi, Volkswagen, Nissan, Daihatsu, and Toyota.
Please see "Important Legal Disclosures" in the final section of this research report.
6
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Figure 1: Tospo’s historical milestones
Producing electronic
ballasts and energyefficient lights,
exporting products to
North America
Export business
growing fast, covering
regions like North
Energy-efficient
America, South
lamp business
America, Europe, Asia, developing fast
etc.
Established
1996
1997-1998
2004
2007
Established a joint
venture with
Philips; became an
excellent supplier
of Philips
Annual sales
exceeded Rmb1bn
2008
2009
Started Ruijin project
to build a
professional LED
production base
2011
2013
2014
2021
2020
2019
Divested
engineering plastics
business, rapidly
developing eAcquired Wuhan
Liangxinpeng commerce channels
Automobile
Lighting and
Shanghai Liangqin,
upgraded general
lighting
production
capacity and
gained orders
from auto
customers
Achieved mass
production and
export of auto
lighting products
2018
Achieved a
controlling stake
in TUS Lighting
(Guangdong),
started
commercial and
auto lighting
business
2017
2016
Officially listed,
became one of the
core partners of
Huawei HiLink and
won the
qualification of
"double A-level"
in China lighting
engineering
2015
Established Tospo
Optoelectronic for
professional lighting
products and the
company's overall
annual sales
exceeded Rmb3bn
Obtained the title of
"Top 100 Enterprises in
Chinese Light Industry
2015" and "Top 10
Enterprises in Lighting
Industry"
Source: Company website, CICC Research
Please see "Important Legal Disclosures" in the final section of this research report.
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Acquired Tospo
plastics
Established ecommerce branch
and intelligent
lighting team, LED
exports ranked
second in China
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Figure 2: Tospo’s ownership structure (Dec. 31, 2021)
Actual controller
Dongyang Hengdian
Association of
Economic enterprises
51.00%
99.98% Dongyang Hengchuang
Industrial Development
Partnership limited
19.00%
The controlling
shareholder
Hengdian Group Holding Co., Ltd
30.87%
100%
Zhejiang Hengdian
Import and Export Co.,
Ltd
19.25%
Others
24.0%
Jinhua Deming
Investment Partnership
limited
6.40%
49.27%
Chairman
16.19%
NI Qiang
1.08%
Hengdian Group Tospo Lighting Co., Ltd
100%
Ruijin
Tospo
Lighting
100%
Zhejiang
Hengdian
Tospo
Import and
Export
100%
100%
Hengdian
Group
Tospo
Public
Lighting
Dongyang
Tospo
Lighting
70%
Wuhan
Liangxinpeng
Auto Lighting
70%
Shanghai
Liangqin
68%
Guangdong
TUS
Lighting
...
Source: Corporate filings, CICC Research
Investment highlights
General lighting division covers multiple submarkets and has built stable
relationships with major core customers
Tospo’s household lighting business has solid fundamentals, and mid- and small-sized
firms are exiting the market rapidly
►
Tospo focuses on exporting products. It is a leading lighting-product exporter in China.
The firm has maintained years of stable cooperation with major customers such as
Philips and Panasonic. It has expanded its coverage to more than 70 countries and
regions across the world. Tospo has gained strong production advantages. It quickly
responds to customer needs and strictly controls product quality. Its operating efficiency
is one of the highest in the industry.
►
In contrast, some mid- and small-sized lighting firms are facing heavy pressure from
supply chains and liquidity conditions amid the COVID-19 pandemic. They are unable to
maintain normal R&D cycles. We do not think price advantage alone can ensure their
long-term sustainable development. We believe large firms with strong size advantages
Please see "Important Legal Disclosures" in the final section of this research report.
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may gradually increase market share.
Tospo expanded into commercial lighting to enhance profitability. It has realized the
importance of warding off risks. In addition to fundamental services (i.e. OEM services for
foreign lighting firms), Tospo also explores the domestic market and acquires customers in
specific submarkets. It develops the commercial lighting business through Guangdong TUS
Lighting Co. Tospo acquires commercial users through project construction. The firm’s
commercial lighting products are now used mainly in street lighting, landscaping projects, and
commercial buildings. Its commercial lighting business remains small, but has larger growth
potential and higher added value than household lighting products. We believe this business
will help enhance Tospo’s earnings.
Tospo enters the auto electronics market by relying on Panasonic and
Porsche; it benefits from rising penetration of intelligent vehicles
Tospo has maintained close cooperation with Panasonic for years. Automakers are
transforming themselves into producers of electric and intelligent vehicles. Under these
circumstances, Tospo has become a fixed lamp controller supplier to multiple automakers and
a number of vehicle manufacturing platforms. We think its auto electronics business could
ramp up rapidly and grow steadily in the medium-to-long term, driven by demand from quality
customers such as Panasonic and Porsche. In addition, after buying relevant firms, Tospo has
acquired the expertise in vision systems of intelligent vehicles. We think the company could
further expand its product categories and boost the value of its auto parts per vehicle.
Earnings forecasts and valuations
We expect Tospo’s revenue to be Rmb5.96bn in 2022 and Rmb7.03bn in 2023. We estimate
that its net profit attributable to shareholders could be Rmb363mn in 2022 and Rmb450mn in
2023.
►
Exports of general lighting products: We expect growth of Tospo’s revenue from this
business to decelerate, as overseas economic activities recover and inventories at
downstream customers have not been fully consumed. However, we believe gross
margin may recover to the normal level of 16–17% as pressure from ocean freight rates
and raw materials is likely to ease.
►
Domestic sales of general lighting products: Tospo has increased its efforts to
explore Chinese markets for lighting project construction and lighting products for
supermarkets. We believe the move will enhance the firm’s profit margin, as this
business has a higher gross margin than traditional lighting OEM business.
►
Auto parts: Tospo has built auto electronics capacity. We expect the firm’s revenue from
this business may expand at a 50% CAGR in 2021–2023, driven by backlog BMS and
LDM3 orders from Panasonic and Porsche. We think the gross margin of Tospo’s auto
3
In this report, BMS and LDM refer to battery management system and LED driver module.
Please see "Important Legal Disclosures" in the final section of this research report.
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electronics division will trend upward driven by rising capacity utilization rate and product
yield rate.
Figure 3: Historical and forecasted revenue breakdown
(Rmb mn)
Total revenue
Main business revenue
General lighting
Exports
Domestic
Auto parts
Auto lighting products
Auto electronics
Other business revenue
Revenue YoY
Main business revenue
General lighting
Exports
Domestic
Auto parts
Auto lighting products
Auto electronics
Other business revenue
Gross margin
Main business revenue
General lighting
Exports
Domestic
Auto parts
Auto lighting products
Auto electronics
Other business revenue
2017A
4,031
4,028
4,028
3,215
813
2018A
3,995
3,990
3,990
3,032
958
2019A
4,244
4,240
4,239
2,877
1,362
2020A
4,508
4,503
4,503
3,132
1,372
5
-0.9%
-0.9%
-0.9%
-5.7%
17.8%
4
6.2%
6.3%
6.3%
-5.1%
42.2%
5
6.2%
6.2%
6.2%
8.8%
0.7%
14.6%
14.5%
14.5%
15.7%
9.9%
47.7%
15.6%
15.6%
15.6%
17.0%
11.1%
-28.5%
18.8%
18.8%
18.7%
21.0%
14.1%
20.4%
19.0%
19.0%
19.0%
19.6%
17.6%
84.9%
48.5%
30.2%
52.4%
4
2021A
5,273
5,265
4,984
4,108
876
281
140
141
8
17.0%
16.9%
10.7%
31.2%
-36.1%
77.7%
13.8%
13.7%
13.8%
12.9%
17.8%
12.0%
13.0%
11.0%
52.6%
2022E
5,961
5,952
5,580
4,605
975
373
161
212
9
13.1%
13.1%
12.0%
12.1%
11.2%
32.6%
15.0%
50.0%
10.0%
15.6%
15.6%
15.7%
15.4%
17.0%
13.9%
15.0%
13.0%
50.0%
2023E
7,030
7,021
6,526
5,402
1,124
494
177
317
10
17.9%
17.9%
17.0%
17.3%
15.4%
32.7%
10.0%
50.0%
10.0%
16.2%
16.2%
16.3%
16.0%
17.5%
15.0%
15.0%
15.0%
50.0%
Note: Gross margin = 1 – COGS/revenue; domestic general lighting business saw its YoY revenue growth decelerate in 2021 as Tospo sold its plastics division in the same
period and this division had been part of the domestic general lighting business
Source: Corporate filings, CICC Research
Please see "Important Legal Disclosures" in the final section of this research report.
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Figure 4: Earnings forecasts
(Rmb mn)
Total revenue
Revenue
YoY
Total cost
COGS
Business tax and surcharges
Distribution costs
G&A expenses
R&D expenses
Financial costs
Asset impairment loss
Other operating expenses
Other operating income
Operating profit
YoY
Non-operating profit
Profit before taxation
YoY
Tax
Minority interest
Net profit (exclude MI)
YoY
EPS (RMB)
2017A
4,031
4,031
25.0%
(3,863)
(3,444)
(16)
(153)
(207)
(35)
(8)
2018A
3,995
3,995
-0.9%
(3,786)
(3,371)
(12)
(168)
(120)
(100)
4
(20)
2019A
4,244
4,244
6.2%
(3,980)
(3,447)
(14)
(196)
(124)
(131)
(17)
(51)
2020A
4,508
4,508
6.2%
(4,224)
(3,650)
(16)
(145)
(138)
(162)
(22)
(90)
2021A
5,273
5,273
17.0%
(5,030)
(4,548)
(12)
(151)
(162)
(152)
41
(46)
2022E
5,961
5,961
13.1%
(5,567)
(5,030)
(14)
(179)
(179)
(179)
36
(23)
2023E
7,030
7,030
17.9%
(6,539)
(5,890)
(16)
(211)
(211)
(211)
38
(38)
23
190
-47%
48
238
-38%
(26)
(2)
210
-34%
0.44
32
241
27%
43
284
19%
(37)
0
247
18%
0.52
41
305
26%
40
345
22%
(34)
(2)
310
25%
0.65
36
320
5%
66
386
12%
(42)
(1)
342
10%
0.72
52
295
-8%
70
365
-5%
(37)
(0)
328
-4%
0.69
10
404
37%
0
404
11%
(41)
(0)
363
11%
0.76
10
502
24%
0
502
24%
(51)
(0)
450
24%
0.94
Note: R&D expenses excluded from G&A expenses
Source: Corporate filings, CICC Research
Relative valuation: We choose A-share lighting firms, auto electronics companies, and auto
lighting firms as Tospo’s comparable firms. We note that comparable stocks in the general
lighting sector are trading at an average 2022e P/E of 21.4x, which is relatively high due to
Gongniu Group’s demanding valuation4. Tospo’s comparable firms in the auto parts sector are
trading at an average 2022e P/E of 59.6x. Tospo’s auto parts business has a better growth
prospect than its general lighting business, although it currently accounts for a small
proportion of the firm’s revenue. Therefore, we initiate coverage on Tospo with an
OUTPERFORM rating and a target 2022e P/E of 25x, implying a target price of Rmb19.0 (23%
upside).
4
Gongniu Group enjoys strong competitive advantages in electrical appliances for household applications.
Please see "Important Legal Disclosures" in the final section of this research report.
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Figure 5: Valuations of comparable companies
Ticker
Net profit
EPS
P/E
Last Mkt cap
Reporting Trading
(reporting CY mn)
(reporting CY)
price (Rmb mn)
currency currency
2021A 2022E 2023E 2021A 2022E 2023E 2021A 2022E 2023E
Company
General lighting
605365.SH LEEDARSON
16.81
8,407
301
n.a.
n.a.
0.64
n.a.
n.a.
25.8
N.M.
N.M.
CNY
CNY
603515.SH Opple Lighting*
17.45
13,161
907
908
1,055
1.20
1.20
1.40
14.5
14.5
12.5
CNY
CNY
603195.SH Gongniu Group*
152.91
91,927
2,780 3,239 3,755
4.62
5.39
6.25
33.1
28.4
24.5
CNY
CNY
37,831
1,330 2,074 2,405
2.16
3.30
3.82
24.5
21.4
18.5
Average
Automobile related
601799.SH Xingyu Automotive Lighting*
171.00
48,851
949
3.32
4.62
6.00
51.5
37.0
28.5
CNY
CNY
603786.SH Keboda Technology*
61.57
24,634
389
499
686
0.97
1.25
1.72
63.3
49.4
35.9
CNY
CNY
688533.SH SONAVOX Electronics*
71.44
11,430
61
100
186
0.38
0.62
1.16
188.4 114.4
61.5
CNY
CNY
603197.SH Baolong Automotive Corporation* 49.19
10,222
268
272
293
1.29
1.31
1.41
38.1
37.6
34.9
CNY
CNY
Average
23,784
417
547
720
1.49
1.95
2.57
85.3
59.6
40.2
7,350
328
363
450
0.69
0.76
0.94
22.4
20.3
16.3
CNY
CNY
603303.SH Hengdian Group Tospo Lighting*
15.41
1,319 1,713
Note: CICC covers the companies marked * and we use our estimates; the others represent market consensus
605365.SH as of market close on June 29, 2022 (Beijing time); 603515.SH, 603195.SH, 601799.SH, 603786.SH, 688533.SH, 603197.SH, 603303.SH as of market close
on June 30, 2022 (Beijing time)
Source: Wind, Bloomberg, corporate filings, CICC Research
Risks
Volatile raw material prices: Raw material cost accounts for more than 80% of Tospo’s
operating cost. In 2021, commodity prices increased sharply, and prices of the firm’s raw
materials (e.g. electronics and structural parts) fluctuated. We believe this factor may erode
the company’s gross margin.
Disappointing development of auto parts business: The company did not achieve mass
production of auto parts until recent years and this business remains small. Tospo’s auto parts
have yet to win the recognition of automakers. Meanwhile, the market for tier-1 auto parts
suppliers faces intense competition. As a new entrant, Tospo faces high barriers to entry in
terms of customers and product competitiveness. In addition, the firm’s BMS controller
business is unlikely to ramp up in the near term, and customer acquisition remains uncertain,
in our view.
Account receivable impairment related with commercial lighting business: The firm’s
commercial lighting business mainly covers street lighting, landscaping projects, and
commercial facilities, with customers including local governments, store chain operators, and
property developers. In our view, the firm’s commercial lighting business may not collect part
of its account receivables, although Tospo normally selects customers based on credit record
and chooses distributors through bid invitation.
Please see "Important Legal Disclosures" in the final section of this research report.
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General lighting: Tospo is a leading lighting-product
exporter, and explores specific submarkets
Chinese lighting firms become more competitive than before amid
popularity of LED products
Chinese exports of illuminating appliances trended upward. The country’s illuminating
appliance industry recorded revenue of about Rmb680bn in 2021, implying a 4% CAGR in
2016–2021. China dominated the markets for LED chip manufacturing and packaging as LED
lighting products became popular. Consequently, its capabilities to control the lighting industry
chain improved considerably. Chinese exports of illuminating appliances rose 14.2% YoY to
about Rmb410bn in 2021, implying a 12.1% CAGR in 2016–2021.
Figure 6: Size of China’s illuminating appliance
Figure 7: Chinese exports and domestic sales of
industry
illuminating appliances
14%
500
700
12%
400
600
10%
500
8%
400
6%
300
4%
100
200
2%
0
800
(Rmb bn)
100
20%
300
0%
200
-20%
-40%
2016
0%
0
2017
2018
2019
2020
2021
Illuminating appliances market size of China
Source: China Association of Lighting Industry, CICC Research
2017
2018
2019
2020
2021
Export sales of illuminating appliances
Domestic sales of illuminating appliances
YoY (exports)
YoY (domestic)
-2%
2016
40%
(Rmb bn)
YoY
Source: China Association of Lighting Industry, CICC Research
Chinese lighting industry chain has gained strong advantages amid the boom of LED
products. China’s lighting firms have become more competitive than ever before. When
incandescent bulbs and energy-saving lamps remained popular, foreign brands like Philips,
OSRAM, and General Electric enjoyed major advantages in the global light source market.
However, China’s LED lighting supply chain has gained strong advantages as LED products
become popular and LED chip manufacturing and packaging capacity is concentrated in
China. The country is now the world’s largest producer and exporter of illuminating appliances,
with its global market share having exceeded 50%.
Please see "Important Legal Disclosures" in the final section of this research report.
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Figure 8: LED lighting industry chain, and Chinese firms in the industry chain
Upstream: Raw materials and
chip manufacturing
Midstream: Packaging
Home lighting
Electronic components: LED
chip, PCB chip, MLCC, SMD
Resistor, etc.
Metals: Copper sheet, aluminum
alloy, etc.
Downstream: Applications
General
lighting
LED packaging
Commercial lighting
Office lighting
Rail transit lighting
……
Auto lighting
Special
lighting
Plastics: Plastic parts
Emergency lighting
……
Output value: Around Rmb30bn
Output value: Around Rmb90bn
Output value: Around Rmb650bn
Distribution
of LED chip
Capacity distribution
of capacity
LED chipon
in the
Chinese
(2021)
Mainlandmainland
China (2021)
12%
27%
Sanan
Optoelectronics
Hc Semitek
10%
Shenzhen MTC
Change Light
9%
10%
18%
Jiangsu Azure
Corporation
Focus Lightings Tech
Others
14%
Note: Output value of both upstream and downstream markets refers to the data in 2021
Source: CSA, company website, corporate filings, CICC Research
Tospo: A leading lighting-product exporter with strong production
advantages
Tospo has focused on lighting for years, and sells most of its products to foreign
markets. It started to export its products to North America shortly after its inception. In 2004, it
exported products to North America, South America, Europe, and Asia. The firm’s sales
network now covers more than 70 countries and regions. Tospo has entered supply chains of
global lighting firms such as Philips and Panasonic. Its exports business grew steadily as
Chinese lighting firms became increasingly competitive in the global market and started to
expand overseas. Tospo’s export revenue rose at an 8.9% CAGR in 2014–2021. Export
revenue as a percentage of the firm’s total sales revenue has stayed at around 70% in recent
years.
Please see "Important Legal Disclosures" in the final section of this research report.
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Figure 9: Chinese lighting firms and their
Figure 10: Tospo’s revenue from domestic and
revenue from overseas markets
foreign markets
6,000
(Rmb mn)
6,000
5,000
5,000
4,000
4,000
3,000
3,000
2,000
2,000
1,000
1,000
0
100%
(Rmb mn)
80%
60%
40%
20%
0
Opple
Lighting
Yankon
Lighting
2018
Foshan
Lighting
2019
2020
Tospo Leedarson
Lighting
0%
2014 2015 2016 2017 2018 2019 2020 2021
Domestic sales
Exports sales
Proportion of exports sales (RHS)
2021
Source: Corporate filings, CICC Research
Source: Corporate filings, CICC Research
Strong production capabilities and strict control of product quality: Tospo has focused
on lighting for years and has maintained close cooperation with customers. It rapidly responds
to industry trends and market demand. It built production facilities in a timely manner. The
firm’s general lighting division now owns production bases in both China 5 and Vietnam. Tospo
sold almost 400mn lamps for general lighting applications in 2021, similar to levels of other
leading firms. It has developed stronger production and supply capabilities than mid- and
small-sized firms. Tospo strictly controls product quality and places a strong emphasis on
quality management.
Information system upgrading continues; production and operational efficiency one of
the highest in the industry. Tospo pays attention to production efficiency. It has built fully
automated production lines and created automatic, intelligent, and digital manufacturing
platforms. It has also built intelligent manufacturing workshops. The company upgrades
information systems to empower corporate management and operations. Its per-capita
income and earnings are both among the highest in the industry.
5
The production bases in China are located in Hengdian, Ruijin, and Wuning.
Please see "Important Legal Disclosures" in the final section of this research report.
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Figure 11: Sales volume of Chinese lighting firms
Figure 12: Chinese lighting firms, and their
product quality certificates by region
900
800
700
600
500
400
300
200
100
-
(unit mn)
North America
2018
2019
2020
Opple Lighting
Yankon Lighting
Tospo Lighting
Leedarson
Tospo Lighting
UL, CUL, FCC,
ES, CSA
Yankon Lighting
UL, FCC, ES
Leedarson
UL, FCC, ES,
DLC
Note: The data for Opple refers to lighting products and other relevant products;
Asia Pacific
Other areas
PSE, CCC,
SASO
CE, GS, RoHS
energy-saving (Saudi Arabia)
EMC, CE, GS,
PROCEL
TUV, VDE
(Brazil)
CE, ENEC, GS,
RoHS, REACH
PSE
RCM (Australia)
Opple Lighting
Opple mainly focus on domestic market, there are fewer overseas
quality certifications.
Foshan Lighting
Overseas business was started late, there are fewer overseas
quality certifications.
2021
Foshan Lighting
Europe
Source: Company website, corporate filings, CICC Research
the data for Yankon is about LED lamps and energy-saving lamps for 2017–2019,
and about LED lamps only for 2020; data for Foshan Lighting refers to light
fixtures and luminaire; data for Tospo is about general lighting products; data for
Leedarson refers to LED lighting products
Source: Corporate filings, CICC Research
Figure 13: Per-capita income at Chinese lighting
Figure 14: Per-capita profit at Chinese lighting
firms
firms
2,000
200
('000 Rmb/person)
1,500
150
1,000
100
500
50
0
('000 Rmb/person)
0
2018
2019
Opple Lighting
Foshan Lighting
Leedarson
2020
2021
2018
2020
Opple Lighting
Foshan Lighting
Leedarson
Yankon Lighting
Tospo Lighting
Source: Corporate filings, CICC Research
2019
2021
Yankon Lighting
Tospo Lighting
Source: Corporate filings, CICC Research
Tospo derives a large part of its revenue from major customers. Its supply capability
and product quality have won market recognition. Customer resources: Tospo continues
to acquire large global customers by leveraging its stable supply capabilities and strict quality
control. The firm’s revenue from the top five customers6 as a percentage of its total revenue
has stayed above 40% for years. High customer trust: Tospo keeps up with industry trends
when developing and producing products. It upgraded its lighting products from energy-saving
6
The top five customers include Philips and Panasonic.
Please see "Important Legal Disclosures" in the final section of this research report.
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lamps to LED ones7.
Figure 15: Tospo’s revenue from the top five
Figure 16: Tospo’s major customers
customers as a percentage of its total revenue
80%
60% 52%
57%
53%
44%
38%
40%
45%
42%
Global
lighting
companies
47%
(Multinational corporation)
(US)
(Multinational corporation)
(Canada)
(India)
Household
appliances
companies
20%
0%
2014 2015 2016 2017 2018 2019 2020 2021
Revenue proportion of Top five customers
Revenue proportion from Philips
Revenue proportion from Panasonic
Note: Tospo has stopped disclosing specific revenue data from each of the top
Retailer
(France)
Source: Corporate filings, CICC Research
five customers since 2019
Source: Corporate filings, CICC Research
Tospo explores domestic market, and has expanded into lighting
products for automobiles and commercial facilities
Tospo pays great attention to risk prevention. It is able to diversify business lines. Throughout
its history, the company has repeatedly adjusted operation strategies and explored different
markets to deal with industry changes and search for new growth drivers.
►
Plastics business: Tospo purchased a plastics firm in 2013 to meet its own production
requirements. The deal made its costs controllable and product supply stable. Tospo
spun off this business in 2020 in a bid to focus on lighting and auto parts businesses.
►
Chinese market: Tospo set up an e-commerce branch in 2014 and planned to increase
marketing spending and build sales channels in the domestic market.
►
Commercial lighting: Tospo acquired 68% of Guangdong TUS Lighting in 2018 to enter
the commercial lighting market.
►
Auto lighting: Tospo set up an auto lighting subsidiary in 2018. In 2019–2021, it
expanded into VOBC and entered the auto electronics market.
7
Energy-saving lamps started to gain popularity around 2000, while LED lamps won strong favor starting from 2010.
Please see "Important Legal Disclosures" in the final section of this research report.
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Figure 17: Tospo’s efforts on business expansion
Year
Event
Goal
Acquired Tospo Plastic, which engaged in highgrade modified plastic granules and components
Established e-commerce branch to promote
domestic lighting business
2013
2014
2018
Acquired Guangdong TUS Co. Ltd.
2018
2020
2021
Materials supply
Market expansion
Commercial lighting
Started auto lighting business
Auto lighting
Sold plastic business and focused on the main
business
Acquired Wuhan Liangxinpeng and Shanghai
Liangqin
Focus on main
business
Auto parts
Source: Corporate filings, CICC Research
Commercial lighting market has larger growth potential than other lighting markets and
tends to create higher added value products. Commercial lighting targets corporate users.
According to Euromonitor and blue papers on the LED lighting industry, the general lighting
market in Chinese mainland had an output value of about Rmb300bn in 2021, with the
household lighting segment contributing about Rmb62bn. Commercial lighting products create
higher added value than household lighting products. We estimate that Tospo’s commercial
lighting business had a gross margin of about 17.8% in 2021, higher than the traditional
general lighting business.
Tospo has expanded into public lighting through project construction. The firm’s
revenue from construction projects reached Rmb275mn in 2021, accounting for 5.2% of its
total revenue, second only to that of its traditional general lighting business. Tospo’s
construction projects are mostly large lighting projects such as night lighting, street lighting,
and lighting for landscaping. These projects are part of infrastructure facilities.
Figure 18: Guangdong TUS Lighting’s revenue
Figure 19: Revenue and gross margin of Tospo’s
and net margin
project construction business
140
6.0%
(Rmb mn)
120
5.0%
100
4.0%
80
3.0%
60
2.0%
40
1.0%
20
0.0%
0
-1.0%
2018
2019
Revenue
Source: Corporate filings, CICC Research
2020
400
350
300
250
200
150
100
50
0
20%
(Rmb mn)
15%
10%
5%
0%
2019
2021
2020
Revenue
Net profit margin
2021
Gross margin
Source: Corporate filings, CICC Research
Please see "Important Legal Disclosures" in the final section of this research report.
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Auto parts: Tospo focuses on auto electronics and
intends to explore the global market by cooperating with
Panasonic
The segment for LED drive modules benefits from rising demand for
intelligent auto lighting products and increasing penetration of LED
auto lamps
Rising penetration of intelligent auto lighting products represents an evident trend. The
automobile industry is facing a boom of intelligent vehicles. We expect auto lamps to be
upgraded from traditional functional components to electric and intelligent auto parts. We
believe auto lamps could become one of the major options for vehicle digital interaction. LED
auto lamps are equipped with intelligent systems and could make driving much safer than
before, in our view. We think this factor will accelerate penetration of LED auto lamps, thus
driving growth in the market for auto LED lighting controllers.
Figure 20: A glance at adaptive front-lighting system (AFS)
Cruise
Acceleration
Deceleration
The dotted line indicates the light angle
that cannot be dynamically adjusted
Headlights moving left or right
Headlights moving up or down
Source: www.hirain.com, CICC Research
The auto lighting industry has a size of about Rmb200bn. It is a promising auto-parts segment.
The value of auto lighting products per vehicle remains high, and these products need to be
constantly updated. The industry is highly concentrated and is now dominated by foreign firms.
However, Chinese companies continued to grow in recent years.
Please see "Important Legal Disclosures" in the final section of this research report.
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Figure 21: Changes in penetration rates of each
Figure 22: Global auto lighting industry’s
type of auto lighting
competitive landscape in 2020
100%
3% 2%2%
3%
4%
80%
60%
Koito
26%
6%
Marelli
Valeo
Hella
40%
Stanley
20%
HASCO Vision
11%
0%
2020
2021
2022
LED auto lamps
Laser auto lamps
2023
2024
2025
SL
2026
Jinxiang
ADB auto lamps
16%
12%
Xenon auto lamps
Halogen auto lamps
Varroc
Magna
15%
Source: Yole, CICC Research
Xingyu
Source: Mobility Foresights, CICC Research
LED drive modules are essential to auto lighting systems. They are in charge of light
source drive algorithms. They enable LED light sources to emit light based on preset input
instructions.
Figure 23: The number and value of auto lighting controllers per vehicle has been rising amid auto
lighting upgrading
Halogen/Xenon
headlights
No controllers.
LED headlights
Controller needed.
Requirements for the
controller become more
complicated as the
number of mini backlights
increases.
Strong momentum with a penetration rate of 59%
(2020)
ADB matrix
headlights
The controller controls
multiple LED chips, which
requires more powerful
performance and
algorithms. The value of
the headlight is to
increase by 100% to
200% depending on
different softwares.
Promising outlook with a penetration rate of 5.4%
(2020)
Source: www.autohome.com.cn, CICC Research
Please see "Important Legal Disclosures" in the final section of this research report.
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Auto lighting technological upgrading boosts demand for auto lighting controllers.
Outsourcing meets cost-reduction needs of tier-1 auto lighting producers. The auto
lighting market is highly concentrated. The top three firms8 combined had market share of
almost 50% in 2020. In the auto lighting controller market, major suppliers include Denso,
Mitsubishi, and Keboda, as well as only a few major producers of auto lighting (e.g. Koito,
Hella, Valeo, and Stanley). In other words, auto lighting producers mostly do not supply auto
lighting controllers. We believe this is due to two reasons. First, halogen lamps mostly do not
include electronic components. Second, when halogen lamps remained popular, a majority of
auto lighting producers were unable to develop auto lighting controllers. Only firms with strong
expertise in auto electronics like Hella can provide a full range of products including auto
lighting controllers. As halogen lamps are upgraded to LED, the use of controllers and
continued updates require auto lighting firms to buy controllers to meet upgrading needs.
Figure 24: Estimated size of auto lighting controller market
China PV output ('000 unit)
2020A
19,750
2021A
21,080
2022E
21,190
2023E
22,430
2024E
22,930
2025E
23,520
2026E
24,200
World PV output ('000 unit)
59,790
67,200
70,260
70,890
72,010
72,090
72,090
LED auto lighting penetration rate
59%
65%
71%
77%
83%
89%
91%
ADB auto lighting penetration rate
5%
6%
15%
25%
30%
35%
40%
Laser auto lighting penetration rate
1%
2%
2%
3%
4%
5%
6%
Ambient lighting penetration rate
8%
15%
30%
40%
45%
50%
55%
China lighting controller market size (Rmb bn)
6.8
8
8.9
10.4
11.5
12.6
13.6
World lighting controller market size (Rmb bn)
20.6
25.4
29.4
33
36
38.6
40.5
Source: China Association of Automobile Manufacturers, www.chyxx.com, CICC Research
Tospo likely to expand into auto lighting by leveraging its expertise
in LED drive modules
Tospo has worked with Panasonic for almost two decades. It offered only general lighting
products to Panasonic at first, and then provided both general and automotive lighting
products to this Japanese company. Tospo set up a wholly-owned auto lighting subsidiary in
September 2018 in a bid to implement its development strategy and expand business lines. It
achieved mass production of LED drive modules (LDM) in May 2019. Tospo leverages
Panasonic to supply LDM to automakers like Toyota, Nissan, and Daihatsu. In addition to the
Chinese market, it also sells auto lighting products to Japan and Southeast Asia. Tospo’s
revenue from auto lighting products rose 41% YoY to Rmb129mn in 2021.
8
In terms of market share in 2020, the top three firms are Japanese Koito, Hella, and Magneti Marelli.
Please see "Important Legal Disclosures" in the final section of this research report.
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Figure 25: Tospo’s revenue from auto lighting
Figure 26: Tospo’s net profit from auto lighting
business
products
140
7
(Rmb mn)
(Rmb mn)
6
120
5
100
4
80
3
60
2
40
1
0
20
-1
0
2019
2020
-2
2021
Source: Corporate filings, CICC Research
2018
2019
2020
2021
Source: Corporate filings, CICC Research
Tospo has built an advanced manufacturing system for auto electronics. It plans to
expand its capacity and achieve independent LDM production. The firm has built the
highest-grade clean workshop for lighting products in China. Its auto parts business has
progressed smoothly and passed the tests of multiple new customers. The firm’s six LDM
production lines (including the ones under construction) are able to produce an average of
8,000 LDMs per day, sufficient to produce headlamps for 100,000 vehicles a month.
Figure 27: Tospo has built the highest-grade clean workshop for lighting products in China
Source: Company website, CICC Research
Tospo completed acquisition of Shanghai Liangqin and Wuhan Liangxinpeng in 1H21,
thus acquiring their quality customers. In December 2020, Tospo announced a plan to
contribute an additional Rmb91mn to Shanghai Liangqin9 and to acquire 70% of Wuhan
9
The move raised Tospo’s stake in Shanghai Liangqin to 70%.
Please see "Important Legal Disclosures" in the final section of this research report.
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Liangxinpeng for Rmb7mn. It completed these two deals in 1H21. Shanghai Liangqin was
founded in 2007 and focuses on manufacturing plastic molds and producing all plastic
components of auto lighting. The firm’s downstream customers include Chinese automakers
(e.g. GAC Group, Chang’an, BYD, and Geely) and China’s joint venture firms with
Volkswagen, General Motors, and Ford.
We think Tospo may expand into auto lighting by leveraging its auto lighting controller
business as well as Shanghai Liangqin and Wuhan Liangxinpeng’s expertise in light source
modules and structural parts.
Figure 28: Shanghai Liangqin’s customers
Source: Company website, CICC Research
Figure 29: Tospo may expand into auto lighting by leveraging its expertise in LDM
Foreign enterprises: Koito, Hella, Valeo, Visteon, Marelli, Stanley;
Domestic enterprises: Anrui, MIND Opto, HASCO Vision, Xingyu Automotive
Lighting
Modules:
Foreign enterprises: PHOENIX, Osram, Cree, Toyoda Gosei, Stanley, Philips;
Enterprises in Taiwan, China: Laster Tech
Controllers:
Foreign enterprises: Continental, Delphi, Hella, Denso;
Domestic enterprise: SEEYAO, Keboda
Foreign enterprises: Lumileds, Nichia, Cree;
Enterprises in Taiwan, China: Everlight, LiteOn, Epistar;
Domestic enterprise: Forest Lighting, Hongli Zhihui Group, Nationstar
Foreign enterprises: Lumileds, Osram, Stanley, Dominant Opto, Samsung,
Nichia;
Enterprises in Taiwan, China: Lextar
Domestic enterprise: Sanan Optoelectronics
Source: auto.gasgoo.com, CICC Research
Tospo has expanded into BMS controllers; auto parts business to
become a second growth driver
Tospo becomes a fixed supplier of Wanxiang, thereby entering Audi and Porsche’s
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supply chains. We believe this represents a new milestone for the firm’s auto parts
business. In August 2021, the company announced that its subsidiary was chosen as
Wangxiang’s fixed supplier of customized BMS controllers. It stated this order had a value of
about Rmb1.27bn and that its products would be used in some of Porsche and Audi’s models.
We think this factor not only enables Tospo to benefit from Porsche and Audi’s transformation
towards electric vehicles, but also helps the company build relationships with tier-1
automakers including globally renowned vehicle producers.
Figure 30: Details on Tospo’s cooperation with Wangxiang
Program
Time
Product
Amount
12PPN001
2021-2024
BMS controller
Rmb70mn
48PAU001
2023-2033
BMS controller
Rmb1.2bn
Source: Corporate filings, CICC Research
Figure 31: Porsche and Audi’s planned measures on accelerating transformation towards electric
vehicles
Company
Electrification transformation
Audi
From 2026, Audi's new models for the global market will be fully switched to pure EV; Audi will phase
out production of internal combustion engines by 2033. For the Chinese market, Audi will continue to
expand its business in China, including the expansion of locally produced EV.
Porsche
On the product side, 50% of total sales will be electrified by 2025. By 2030, conventional fuel cars will
take up only 20%, and others will be electrified.
Source: Company website, CICC Research
Figure 32: P/E
Figure 33: P/B
P/E band
45
40
603303.SH
11.2x
22.3x
P/B band
33.4x
44.5x
CNY
35
30
603303.SH
1.3x
2.2x
3.1x
4x
CNY
35
25
30
25
20
20
15
15
10
10
5
5
0
Mar-2017
Jul-2018
Nov-2019
Source: Wind, Bloomberg, CICC Research
Feb-2021
Jun-2022
0
Mar-2017
Jul-2018
Nov-2019
Source: Wind, Bloomberg, CICC Research
Please see "Important Legal Disclosures" in the final section of this research report.
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Jun-2022
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Figure 34: Tospo’s financial statements and main financial ratios
(Rmb mn)
2018A
2019A
2020A
2021A
2022E
2023E
3,995
4,244
4,508
5,273
5,961
7,030
-3,371
-3,447
-3,650
-4,548
-5,030
-5,890
P&L
Revenue
Cost of sales
Gross profit
624
796
857
725
931
1,140
Selling expenses
-168
-196
-145
-151
-179
-211
G&A
-120
-124
-138
-162
-179
-211
R&D expenses
-100
-131
-162
-152
-179
-211
Financial expenses
4
-17
-22
41
36
38
Operating profit
241
305
320
295
404
502
Profit before tax
284
345
386
365
404
502
Tax
-37
-34
-42
-37
-41
-51
Net income
247
310
342
328
363
450
Operating cashflow
175
304
405
-104
362
389
Investing cashflow
-142
-84
524
8
-151
-164
Financing cashflow
147
-331
-139
-459
-169
-122
Cash and cash equivalent increase
165
-141
790
-533
42
103
3,068
3,192
3,439
3,829
4,172
4,776
Cash Flow
Balance Sheet
Total current assets
Total non-current assets
770
925
1,012
1,180
1,209
1,239
1,259
1,452
1,546
1,829
2,027
2,365
1
0
2
28
4
4
2,570
2,656
2,889
3,096
3,295
3,590
Gross margin
15.6%
18.8%
19.0%
13.8%
15.6%
16.2%
EBIT margin
7.0%
8.5%
9.0%
6.1%
6.2%
6.6%
Net profit margin
6.2%
7.3%
7.6%
6.2%
6.1%
6.4%
ROE
10.0%
11.9%
12.3%
11.0%
11.4%
13.1%
ROA
6.8%
7.8%
8.0%
6.9%
7.0%
7.9%
32.8%
35.3%
34.8%
37.1%
37.7%
39.4%
-16.7%
-18.2%
-43.7%
-36.5%
-35.9%
-35.8%
Current ratio
2.4
2.2
2.2
2.1
2.1
2.0
Quick ratio
2.0
1.8
1.8
1.6
1.6
1.6
AR turnover days
92.3
106.7
99.0
118.6
118.0
118.0
Inventory turnover days
66.3
66.3
77.1
71.6
71.6
71.6
35.1%
35.9%
35.8%
49.9%
42.9%
42.9%
Total current liabilities
Total non-current liabilities
Shareholder's equity
Financial Ratio
Debt ratio
Net debt ratio
Dividend payout ratio
Note: Gross margin = 1 – COGS/revenue; R&D expenses are not included in G&A expenses.
Source: Corporate filings, CICC Research
Please see "Important Legal Disclosures" in the final section of this research report.
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Figure 35: Valuations of comparable companies
Ticker
Reporting Last Mkt cap
currency price (Rmb mn)
Company
Revenue
Net profit
P/E
(reporting CY mn)
(reporting CY mn)
2021A 2022E 2023E 2021A 2022E 2023E 2021A 2022E 2023E
White appliances
000333.SZ Midea Group*
CNY
60.39
422,552
341,233 375,389 415,539 28,574 32,868 36,195
14.8
12.9
11.7
600690.SH Haier Smart Home*
CNY
27.46
244,367
227,556 248,870 274,081 13,067 15,250 17,615
19.9
17.0
14.7
06690.HK
Haier Smart Home*
CNY
29.05
244,361
227,556 248,870 274,081 13,067 15,250 17,615
17.2
15.5
13.4
690D.GR
Haier Smart Home*
CNY
1.12
241,573
228,712 252,538 278,136 13,305 16,034 18,604
5.7
4.8
4.3
000651.SZ Gree Electric Appliances*
CNY
33.72
199,436
187,869 198,424 209,876 23,064 24,652 26,737
8.6
8.1
7.5
00921.HK
CNY
8.86
16,284
67,563 76,584 83,542
973
1,112
1,405
10.1
9.3
7.4
002508.SZ Robam Appliances*
CNY
36.03
34,193
10,148 12,051 14,455
1,332
2,345
2,755
25.7
14.6
12.4
300894.SZ Marssenger Kitchenware*
CNY
37.39
15,143
2,319
3,146
3,995
376
527
700
40.3
28.8
21.6
300911.SZ Entive Smart Kitchen Appliance*
CNY
76.85
8,300
1,230
1,772
2,387
210
283
366
39.6
29.4
22.7
002035.SZ Vatti*
CNY
5.82
4,933
5,588
6,340
7,029
207
505
583
23.8
9.8
8.5
002677.SZ Meida Industrial*
CNY
14.67
9,478
2,164
2,590
3,031
665
759
851
14.3
12.5
11.1
Hisense Home Appliances*
Large kitchen appliances
Small appliances
01691.HK
USD
10.22
30,501
5,151
5,927
7,090
420
490
616
10.9
9.3
7.4
688169.SH Roborock Technology*
JS GLOBAL LIFESTYLE*
CNY
616.70
41,199
5,837
7,619
9,891
1,402
1,650
2,198
29.4
25.0
18.7
603486.SH Ecovacs Robotics*
CNY
121.89
69,955
13,086 17,057 21,174
2,010
2,602
3,200
34.8
26.9
21.9
002032.SZ Supor*
CNY
56.34
45,560
21,585 24,361 28,004
1,944
2,393
2,766
23.4
19.0
16.5
002242.SZ Joyoung*
CNY
18.36
14,082
10,540 12,029 13,609
746
920
1,134
18.9
15.3
12.4
603868.SH Flyco Electrical Appliance*
CNY
75.75
32,997
4,005
4,704
5,208
641
777
879
51.5
42.5
37.6
02148.HK
USD
4.80
4,767
454
589
766
42
54
72
17.2
13.3
9.9
002705.SZ Xinbao Electrical Appliances*
CNY
21.99
18,180
14,912 16,836 18,806
792
1,015
1,227
22.9
17.9
14.8
002959.SZ Bear Electric Appliance*
CNY
62.33
9,723
3,606
4,015
4,595
283
359
437
34.4
27.2
22.3
002403.SZ Aishida*
CNY
7.75
2,640
3,508
3,452
3,730
-89
-50
22
N.M.
N.M.
120.3
688793.SH Breo Technology*
CNY
59.01
3,637
1,190
1,578
2,089
92
120
163
39.6
30.3
22.3
688696.SH XGIMI Technology*
CNY
307.87
21,551
4,038
5,283
6,885
483
614
794
31.8
25.1
19.4
002841.SZ Shiyuan Electronic Technology*
CNY
75.32
50,205
21,226 25,098 29,110
1,699
2,217
2,698
29.5
22.6
18.6
600060.SH Hisense Visual*
CNY
12.50
16,353
46,801 54,333 62,602
1,138
1,596
1,916
14.4
10.2
8.5
000810.SZ Skyworth Digital*
CNY
16.21
18,307
10,847 13,337 16,096
422
742
933
40.9
23.2
18.5
300866.SZ Anker Innovations*
CNY
66.32
26,954
12,574 16,275 20,256
982
1,270
1,676
27.5
21.2
16.1
689009.SH Ninebot Limited*
CNY
44.50
31,662
9,146
411
904
1,395
76.3
34.8
22.6
01070.HK
HKD
3.71
7,907
74,847 76,563 81,235
1,184
952
1,142
7.8
9.7
8.1
VESYNC*
New display devices and consumer electronics
TCL ELECTRONICS*
13,003 17,163
Cross-industry home appliance companies
00751.HK
CNY
3.88
8,704
50,928 61,659 71,158
1,634
1,676
2,051
5.2
5.3
4.3
601877.SH Chint Electrics*
Skyworth Group*
CNY
35.78
76,926
42,967 56,768 74,609
4,321
5,571
6,901
17.8
13.8
11.1
605117.SH Deye Technology*
CNY
279.89
66,875
4,168
5,591
7,121
579
853
1,138
82.6
56.0
42.0
603355.SH Kingclean Electric*
CNY
25.23
14,490
7,946
9,554
10,758
503
783
1,019
28.8
18.5
14.2
002050.SZ Sanhua Intelligent Controls*
CNY
27.48
98,683
16,021 19,704 23,798
1,684
2,295
3,018
58.6
43.0
32.7
Civic appliances, lighting appliances, and others
603195.SH Gongniu Group*
CNY
152.91
91,927
12,385 14,840 17,387
2,780
3,239
3,755
33.1
28.4
24.5
603515.SH Opple Lighting*
CNY
17.45
13,161
8,847
9,039
10,303
907
908
1,055
14.5
14.5
12.5
603303.SH Hengdian Group Tospo Lighting*
CNY
15.41
7,350
5,273
5,961
7,030
328
363
450
22.4
20.3
16.3
603579.SH Rongtai Health Technology*
CNY
24.65
3,451
2,613
3,077
3,589
236
291
342
14.6
11.9
10.1
002614.SZ Comfort Science & Technology*
CNY
8.66
5,462
7,927
8,424
9,413
458
473
581
11.9
11.5
9.4
300403.SZ Hanyu Group*
CNY
6.55
3,950
1,128
1,143
1,231
230
209
236
17.2
18.9
16.7
605299.SH Shuhua Sports*
CNY
10.92
4,494
1,562
1,921
2,269
116
160
190
38.8
28.1
23.6
Note: CICC covers the companies marked * and we use our estimates
A-shares as of market close on June 30, 2022 (Beijing time); H-shares as of market close on June 30, 2022 (Beijing time)
Source: Wind, Bloomberg, corporate filings, CICC Research
Please see "Important Legal Disclosures" in the final section of this research report.
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Authors
Yawei TANG
Shanwen LUO
Aaron Wei HE
SAC Reg. No.: S0080521110003
yawei.tang@cicc.com.cn
SAC Reg. No.: S0080121080251
shanwen.luo@cicc.com.cn
SAC Reg. No.: S0080512010001
SFC CE Ref: BBH812
wei3.he@cicc.com.cn
Xue DENG
Jingxin LI
Danlin REN
SAC Reg. No.: S0080521010008
SFC CE Ref: BJV008
xue.deng@cicc.com.cn
SAC Reg. No.: S0080122010053
jingxin.li@cicc.com.cn
SAC Reg. No.: S0080518060001
SFC CE Ref: BNF068
danlin.ren@cicc.com.cn
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Important legal disclosures
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V190624
Editing: Jude Niroshan Abeyeratne, Wanbo ZHOU
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