ADD(SH:603089) China Post Securities·2025-12-01 06:44Investment Rating - The report initiates coverage with a "Buy" rating for the company [2]. Core Insights - The company, Zhengyu Industrial, has been a leader in the automotive shock absorber sector for nearly 30 years, focusing on expanding production capacity and business collaboration [5][14]. - The shock absorber industry is experiencing rapid growth, with engine sealing components becoming a new growth driver due to their high profit margins [6]. - Global automotive ownership is steadily increasing, with significant growth expected in emerging markets like China and India, which will drive demand for the company's products [7][28]. Company Overview - Zhengyu Industrial specializes in automotive shock absorbers, engine sealing components, and rubber shock absorber products, with a strong focus on high-end technology and supply chain integration with new energy vehicle manufacturers [5][14]. - The company has a total market capitalization of 31 billion yuan and a current share price of 12.74 yuan [4]. Financial Performance - The company’s revenue is projected to grow from 27.1 billion yuan in 2025 to 41.1 billion yuan in 2027, with a compound annual growth rate (CAGR) of 39.7% for net profit [8][9]. - The shock absorber business accounts for over 70% of revenue, with a stable gross margin, while engine sealing components are expected to contribute significantly to future growth [6][25]. Market Dynamics - The global automotive market is expected to grow, with the total number of vehicles reaching 1.475 billion by 2024, driven by demand in emerging markets [28][32]. - Zhengyu Industrial's production capacity is set to increase significantly, with projections of producing 41 million shock absorbers by 2029 [7][50]. Product Segmentation - The company’s main revenue source is automotive shock absorbers, which consistently account for over 70% of total revenue, while engine sealing components and rubber shock absorbers are also gaining traction [25][59]. - The company has a diverse product range with over 20,000 models, catering to a wide array of vehicle types globally [37]. Competitive Landscape - Zhengyu Industrial faces competition from both domestic and international players, including Tenneco and ZF Group, but maintains a strong market position due to its extensive product offerings and established customer relationships [38][44].