The automotive industry in China has seen rapid growth and transformation over recent years, with companies continually adapting to new technologies and consumer demandsOne of the industry leaders, Huayu Automotive, has played a significant role in this sector, particularly in the supply of automotive componentsHowever, recent data indicates a deceleration in Huayu's performance, sparking discussions about the future of the company and its competitive stance within the market.
In 2023, Huayu Automotive reported revenues amounting to approximately 168.59 billion yuan (about $24.35 billion), marking a modest year-on-year growth of 6.52%. Nonetheless, the net profit attributable to shareholders barely grew, reaching 7.21 billion yuan (around $1.03 billion), an increase of just 0.15%. The first quarter of 2024 showed continued challenges, as Huayu's revenue only grew by 0.56%, totaling 37.02 billion yuan (about $5.27 billion), while net profit fell by 11.93% to approximately 1.26 billion yuan (around $180 million).
These dwindling returns have prompted a closer examination of Huayu Automotive’s operations, particularly concerning its stock market performanceAn analysis of real-time market data revealed that, among 222 publicly listed automotive component companies, Huayu’s dynamic price-to-earnings (P/E) ratio was notably lower than the median of 24.11, standing at a mere 10.06. Such metrics place Huayu within the lower tier of profitability, evident as it ranked ninth from the bottom among 193 profitable companies in the sectorThe question thus arises: What is impacting Huayu Automotive's standing?
At the heart of the issue lies a combination of stagnant revenue growth and declining profit marginsHuayu is primarily engaged in the production of automotive components, including seats, lighting, dashboards, airbags, bumpers, and various functional parts such as air conditioning compressors and drive shafts, boasting a substantial market share
Advertisements
Particularly, Huayu has maintained a leading position in automotive seats and lighting within China's automotive sector.
Despite Huayu’s diversification efforts in recent years, more than 46% of its revenue in 2023 continued to stem from its largest stakeholder and customer, SAIC Motor Corporation LimitedThis over-reliance on a singular source of income could pose risks as the automotive industry evolves rapidly, particularly with the rise of electrification and intelligent vehicles.
Analyzing Huayu’s financial trajectory over the past five years reveals significant fluctuationsAfter experiencing negative growth between 2019 and 2020, with revenue dropping by 8.36% and 7.25% respectively, the company had a brief revival from 2021 to 2023, posting growth rates of 4.77%, 13.09%, and 6.52% respectivelyHowever, the first quarter of 2024 again reflected stagnation with a mere 0.56% increase.
Concurrently, Huayu’s profitability has faced challengesIn 2020, the company reached a peak gross margin of 15.23%, which has since declined to 13.32% in 2023, and further dropped to 12.54% in the first quarter of 2024. Examining net profit margins, Huayu's figures peaked in 2018 at 8.03 billion yuan (around $1.16 billion), representing a net margin of 6.65%. However, net margins have dwindled significantly, from 5.91% in 2019 to 4.80% in 2023, with the first quarter of 2024 revealing a net margin falling to 3.87%. This trajectory highlights pressing concerns regarding Huayu's operational efficiency and its ability to adapt to changing market dynamics.
Furthermore, a detailed look at Huayu's product segments suggests that its slip in performance is, in part, attributable to underperforming interior and exterior componentsThe revenue for these components, which include dashboards, door panels, and seats, was recorded at 113.07 billion yuan (about $16.56 billion) in 2023, with an annual growth of 8.56%. Despite representing 67.07% of overall revenue, the gross margin for these products fell to 12.99%. Huayu's net profit from these segments barely grew, up just 1.85%, indicating limited profit expansion compared to overall sales.
The automotive landscape is becoming increasingly competitive, especially in the key sectors of seating and lighting
Advertisements
As market demands evolve, companies are prioritizing comfort and cost-efficiency in seating solutionsTherefore, newer manufacturing ventures are circumventing established suppliers like Huayu by engaging directly with original equipment manufacturers (OEMs) while forming partnerships with new component suppliers, leading to the emergence of challengersFor instance, Jifeng Co., which focused on headrests and armrests, has recently positioned itself as a supplier for emerging electric vehicle companies such as NIO and Li Auto.
Additionally, in 2019, Jifeng Co. expanded its operations considerably by acquiring the well-established German automotive interior supplier GrammerNow venturing into passenger seats, the firm anticipates significant sales with nine projects ongoing, forecasted to yield revenues between 56.3 billion to 61 billion yuan (approximately $8.1 to $8.78 billion).
Another major player, Tiangong Intelligent Control, has already established a foothold within Huayu's customer base and is servicing other automotive brands like BAIC, Dongfeng, Chery, and JACTheir passenger seating revenue reached 473 million yuan (about $67.6 million) in 2023, with new contracts also set with prominent manufacturers like SAIC and several leading New Energy Vehicles (NEVs).
Moreover, challenges are also being faced in the automotive lighting sector due to the rise of intelligent lighting solutionsNew entrants such as Xingyu and Kobotda are gaining ground, highlighting the increased competition Huayu encounters in this spaceXingyu, for instance, reported 10.248 billion yuan (around $1.49 billion) in revenues, showcasing a 24.25% increase, while net profits surged by 17.07%, demonstrating robust growth that rivals Huayu's performance.
Similarly, Kobotda recorded impressive figures in 2023, achieving revenue of 4.625 billion yuan (approximately $669 million) with a growth rate of 36.68%, showcasing the scalability and potential of their operations.
In summary, alongside dwindling revenue and profit margins, Huayu is grappling with fierce competition undermining its market dominance
Advertisements
Advertisements
Advertisements