Higher investment threshold for automotive forging gears is expected to be 23.0 billion in 2012

Forging gears are one of the trends in the development of energy-saving cars, and there is great room for future development. The precision forged gears are smaller in size, higher in strength, and longer in service life than gears that are machined, and are in line with the trend toward lighter weight in automobiles. According to Luo Baihui, secretary-general of the International Model Association, most of the domestic precision forging gear technologies are applied to passenger car differential bevel gears and transmission combined gears, and rough estimates of the market demand for automotive differentials and transmission precision forgings exceed RMB 23 billion. In Japan, Europe and the United States, the average precision forging parts of each automobile is about 56kg, while the application of precision forging parts in automobiles produced in China is less than 20kg. The domestic precision forging gear still has a large space for development. Precision Forging Technology Co., Ltd. accounts for approximately 30% of the market share of domestic passenger car differential bevel gears and is the largest supplier of precision forged gears for passenger vehicles in China.

Luo Baihui pointed out that the entry barrier for the automotive precision forging gear industry is relatively high. In order to enter the automobile precision forging gear matching market, it is necessary to have: advanced precision forging die design and production technology; purchase of expensive forging and heat treatment equipment; mature production technology; abundant design and production of human resources reserves; long-term strict through the entire vehicle company Certification. The competition in the domestic automobile precision forging gear industry is mainly carried out between foreign companies such as Germany, Japan and South Korea and a few domestic companies. Domestic product prices are about 20-30% lower than those of foreign companies, and they have strong price advantages.

Product upgrades and customer structure adjustments ensure high corporate gross margins. In recent years, Precision Forging Technology has continuously optimized the product structure, focused on the development of high-end premium sedan forged gears, and reduced the proportion of micro-vehicle gear production. The supply of 1H11 companies to foreign companies and joint ventures exceeds 30% and is expected to increase further in the future.

The fundraising project progressed smoothly and the production capacity issue was gradually resolved. The company's current capacity utilization rate exceeds 100%. The most critical process is heat treatment, followed by forging. The company has completed the ordering of related equipment with 1H11, and it is expected that it will be installed in place in 1H12 to solve the problem of the company's current tight production capacity and lay a good foundation for growth in 2012-2013.

Earnings forecast and investment rating. The equipment for the company's fund raising project will be gradually installed in the first half of 2012, and production capacity will be gradually released. We expect the company's diluted EPS after the 2011-2013 period to be 0.85, 1.14, and 1.46 yuan respectively, which corresponds to 29, 22, and 17 times the latest stock price PE. Taking into account the company's strong market position and large room for growth in the future, it is the first time to give a "recommended" rating.