20201230-招银国际-中集车辆-01839.HK-More_catalysts_in_2021E_5页_898kb

CMB International Securities | Equity Research | Company Update Summary

Core Content

CIMC Vehicles (1839 HK) is a leading manufacturer in the global commercial vehicle industry, with a strong presence in China and growing international exposure. The company is expected to benefit from several catalysts in 2021E, including the completion of its A-share IPO, which is anticipated to significantly enhance its valuation. Additionally, the recovery in earnings is expected to be driven by strong domestic demand and policy support in China aimed at eliminating illegal truck modifications. The company's overseas markets, particularly North America and Europe, are also under review for their performance and potential for growth.

Key Points

1. A-Share IPO

• Approval: CIMC Vehicles received approval for its A-share IPO from the Shenzhen Stock Exchange.
• Proceeds: The IPO aims to raise up to RMB2bn.
• Use of Proceeds:
  • 25% for digital transformation and R&D
  • 58% for the "Light Tower Plants" upgrade and construction
  • 5% for new marketing construction
  • 13% for repayment of bank loans and working capital
• Issue Price: Expected to be around RMB10 per share, implying a diluted P/E of 14x for 2021E.
• Valuation: Target price (TP) was raised from HK$6.60 to HK$9.20, reflecting a 30% upside from the current price of HK$7.07.

2. Earnings Recovery in 2021E

• 2020E Performance: Revenue in 9M20 increased by 7.3% YoY to RMB18.8bn, while net profit dropped by 13% YoY to RMB976mn due to margin pressure and exchange loss.
• 2021E Forecast: Earnings are expected to recover by 20% YoY, driven primarily by the China market.
• EPS Impact: The revised forecast assumes a 10% dilution from new shares, leading to a projected EPS of RMB0.71 in 2020E and RMB0.75 in 2021E.

3. Growth Opportunities in China Market

• Policy Impact: The crackdown on illegal truck modifications is entering the inspection phase, which is expected to trigger a demand replacement cycle.
• Revenue Exposure: CIMC Vehicles has high exposure to semi-trailers, dump trucks, and concrete mixers, which are key targets of the inspection.
• New Product Segment: Refrigerated tank trailers, accounting for 1% of revenue in 1H20, are expected to benefit from vaccine transportation growth.

4. Impact of US Anti-Dumping and Countervailing Duties

• Petition Filed: In July 2020, the Coalition of American Chassis Manufacturers filed a petition with the ITC regarding anti-dumping and countervailing duties on certain Chinese chassis imports.
• Mitigation Strategy: CIMC Vehicles can mitigate the impact by relocating production outside of China.
• Current Exposure: Sales of chassis trailers in North America have decreased from 14% in 2018 to 4% in 1H20, indicating a reduced risk from the duties.

Financial Highlights

Revenue Growth

• FY18A to FY20E: Revenue grew from RMB24,168mn to RMB23,153mn, with a 6.7% increase in FY21E.
• FY22E Projection: Revenue is expected to increase by 3.2% in FY22E.

Earnings Performance

• Net Income: Net income declined from RMB1,143mn in FY18A to RMB1,132mn in FY20E, with a projected increase to RMB1,358mn in FY21E.
• EPS: EPS was RMB0.76 in FY18A, dropped to RMB0.64 in FY20E, and is expected to rise to RMB0.71 in FY21E.

Valuation Metrics

• EV/EBITDA: Increased from 5x to 6x in 2021E, aligning with the target valuation for peers like Weichai Power and Sinotruk.
• P/E: Expected to be 14x for 2021E, compared to the current P/E of 8.7x.
• P/B: Dropped to 0.9x in FY21E, reflecting a decline in asset value relative to book value.

Risk Factors

• Domestic Demand Slowdown
• Uncertainty in US Anti-Dumping and Countervailing Duties
• Rising Component Costs

Share Performance

• Market Cap: HK$12,479mn
• Share Price Performance:
  • 1-month: +0.7%
  • 3-months: +4.0%
  • 6-months: +29.2%
• Price Range (52 weeks): HK$8.32 (High) to HK$5.20 (Low)

Shareholding Structure

• CIMC Group: 52.64%
• Ping An Group: 22.94%
• Others: 24.43%

Key Ratios

• Gross Margin: Expected to improve from 11.3% in FY20E to 12.0% in FY21E.
• EBIT Margin: Projected to rise from 5.8% in FY20E to 6.5% in FY21E.
• Net Profit Margin: Expected to increase from 5.0% in FY20E to 6.1% in FY22E.
• ROAE: Declined from 16.2% in FY18A to 11.4% in FY20E, but is projected to recover to 11.8% in FY21E.
• Current Ratio: Increased from 2.0 in FY18A to 2.9 in FY22E, indicating improved liquidity.

Analyst Ratings

• CMBIS Rating: BUY
• Target Price: HK$9.20
• Potential Return: Over 15% over the next 12 months

Conclusion

CIMC Vehicles is positioned for growth in 2021E, driven by the A-share IPO and domestic demand recovery. While the company faces risks from US trade policies and rising costs, its strong market position and strategic investments suggest a positive outlook. The revised financial forecasts indicate a recovery in earnings and improved margins, supporting the BUY rating. Investors are advised to consider the company's exposure to key markets and the potential impact of regulatory changes.