Report Date: October 30, 2024
Broker: UOB Kay Hian
Company Overview
Background
Joyson Electronics is a leading global supplier of automotive parts, specializing in smart driving systems, automotive safety systems, power management, and Internet of Vehicles technologies. Headquartered in China, Joyson Electronics has established itself as an innovative player in the automotive industry, delivering essential components to support the shift towards intelligent and electric vehicles (EVs).
Market Position
The company is well-positioned to capture growing demand for advanced vehicle safety and smart driving solutions. Joyson benefits from its strong relationships with automotive manufacturers, both domestically and internationally, and its strategic focus on emerging automotive technologies.
Financial Performance
3Q24 Earnings Overview
In the third quarter of 2024, Joyson Electronics reported revenue of Rmb14.06 billion, reflecting a slight year-over-year decline of 1.7%, but a sequential growth of 1.8%. Gross margin rose to 15.7%, up by 0.8 percentage points year-over-year, driven primarily by the strength of its automotive safety segment. The company achieved a net profit of Rmb305 million for the quarter, with year-over-year growth of 0.5%.
9M24 and Full-Year Projections
For the first nine months of 2024, Joyson’s revenue reached Rmb41.13 billion, with core net profit growing by 40.3% year-over-year. The full-year revenue for 2024 is expected to reach Rmb60.2 billion, an 8% increase from the previous year. Net profit projections for 2024-2026 are Rmb1.51 billion, Rmb2.03 billion, and Rmb2.59 billion, respectively, as the company anticipates continued strength in the automotive safety and electronics businesses.
Segment Performance and Key Drivers
Automotive Safety Segment
The automotive safety business remains a significant contributor to Joyson’s growth, with a gross margin improvement attributed to cost-cutting measures and operational efficiency. For the 9M24 period, new orders within the safety segment totaled Rmb49.1 billion, underscoring strong demand and Joyson’s reputation in vehicle safety.
Automotive Electronics Segment
Joyson’s automotive electronics division achieved a revenue of Rmb12.7 billion for the year-to-date period. The electronics segment is a vital growth area, driven by increasing demand for advanced driver assistance systems (ADAS), intelligent cockpits, and vehicle connectivity solutions. New orders related to EVs reached Rmb37.6 billion, with 53% of these orders connected to EV-related technologies.
Focus on Intelligent EV Development
Joyson’s strategic investments in intelligent EV technology are expected to support continued growth. The company has developed products in advanced driver assistance, intelligent cockpit, and vehicle connectivity, while securing new orders for innovations such as UWB (Ultra-Wideband) technology for in-cabin detection, ADAS Level 2 SmartCamera solutions, and V2X (Vehicle-to-Everything) cloud services.
Margin Improvement and Cost Management
Margins and Efficiency Gains
Joyson’s gross margin for 3Q24 improved to 15.7%, primarily due to operational efficiency in the automotive safety business. Full-year gross margins for 2024-2026 are projected at 15.8%, 16.5%, and 17.1%, respectively. Joyson continues to implement efficiency measures such as optimizing employee structures, relocating production capacities, and improving supply chain management, all contributing to enhanced profitability.
Expense Management
The company’s expenses have been well-managed, with a reduction in the administration expense-to-revenue ratio to 4.3% in 3Q24. The R&D expense ratio increased slightly to 4.6%, reflecting Joyson’s commitment to innovation in intelligent automotive technology.
Strategic Outlook and Order Growth
New Order Momentum
Joyson’s new orders in 9M24 totaled approximately Rmb70.4 billion, reflecting robust demand across both domestic and international markets. The company’s safety business secured Rmb49.1 billion in new orders, while the electronics segment gained Rmb21.4 billion, with a strong focus on EV-related projects. Domestic orders accounted for 44% of new orders, illustrating Joyson’s solid footing in China’s expanding EV market.
Future Growth in Automotive Safety and Electronics
Looking ahead, Joyson aims to leverage its expertise in vehicle safety and electronics to support the intelligentization and electrification of vehicles. The automotive electronics division is expected to benefit from increasing demand for safety and smart driving technologies, with revenue growth driven by ongoing new orders and product launches in the EV space.
Valuation and Recommendation
Target Price and Valuation
UOB Kay Hian maintains a “BUY” recommendation for Joyson Electronics, with a target price of Rmb26.00 based on a discounted cash flow (DCF) valuation with a WACC of 12% and terminal growth rate of 4%. This target price implies a 2025 PE of 18x and a price-to-book ratio of 2.2x for 2024.
Dividend and Shareholder Returns
Joyson is expected to provide a gradually increasing dividend yield, with yields of 2.6% in 2024, 3.5% in 2025, and 4.5% in 2026. The improved financial stability and profitability support these projected returns, positioning Joyson favorably for shareholder value creation.
Conclusion
Joyson Electronics is set to benefit from the automotive industry’s shift towards safety and intelligent technology. The company’s sustained new order growth, strategic focus on EV and smart driving technologies, and disciplined cost management underscore its resilience and growth potential in the evolving automotive landscape. UOB Kay Hian’s “BUY” recommendation highlights confidence in Joyson’s strategic position and ability to capture future growth in the smart automotive sector.
