20211108-招银国际-亿和控股-00838.HK-Multiple_growth_drivers_ahead_5页_877kb

EVA Precision Industrial (838 HK) Summary

Core Content

EVA Precision Industrial (838 HK) is a high-end vertically-integrated precision manufacturing service provider in China, with a diverse business portfolio spanning office automation (OA), automotive components, and internet server manufacturing. The company has been listed on the Hong Kong Stock Exchange since 2005 and operates across multiple regions, including China, Vietnam, and Mexico.

Key Growth Drivers

• Auto Parts Business: EVA has become a tier-one supplier to Tesla (TSLA US), receiving direct orders since July 2021 and starting product delivery in August 2021. The main product is the front seat frame, contributing an estimated annualized revenue of HK$100mn (~US$12.8mn). The company is expected to expand its product offerings to Tesla in the future, further boosting revenue.

• Office Automation Segment: EVA's OA equipment business is supported by strong relationships with major Japanese clients such as Canon, HP, and Ricoh. These clients are scaling back their production lines in China, allowing EVA to capture more market share. Additionally, the acquisition of Futaba Metal in April 2021 is expected to contribute more than 10% incremental revenue on a full year basis.

• Internet Server Business: EVA is entering the server manufacturing space by providing sheet metal and plastic parts, as well as offering ODM services for server control boxes and chassis. It focuses on the "L3-L5" manufacturing stage and is expected to see increasing revenue contributions in the future.

Financial Highlights

• Share Options: On 3 November, EVA granted approximately HK$69mn in share options to senior management, with a strike price of HK$1.80 and exercisable from 2 May 2023. This reflects management's confidence in future performance.

• Stock Performance: As of the latest update, the stock is trading at ~1.5x historical P/B. Despite a late October price rally, the valuation remains relatively attractive.

• Revenue Growth: EVA's revenue in 1H21 reached HK$2,387mn, showing a 40% YoY increase. The company's blended gross margin was 20.4% in 1H21, up from 17.4% in 1H20, indicating improved profitability.

• Capacity Expansion: The company's phase one factory in Mexico contributed HK$116mn in revenue in 1H21 (4.9% of total revenue), with phase two under construction, which is expected to double the production capacity. The total annual output value is projected to reach HK$1.2bn upon full operation of both phases.

Business Structure and Operations

EVA operates three main business segments:

1. Office Automation (OA) Equipment Business:

   • Strong customer base includes Canon, HP, Ricoh, etc.
   • Leverages design and development capabilities, precision engineering, and laser welding technology.
   • Major customers are listed in Figure 6.

2. Automotive Component Business:

   • Serves well-known automakers such as Tesla, Volkswagen, and Ford.
   • Main products include automotive seat frames, HS beam parts, and chassis components.
   • Major customers are detailed in Figures 3, 4, and 5.

3. Internet Server Business:

   • Provides server sheet metal, plastic parts, and ODM services for server suppliers.
   • Focuses on "L3-L5" manufacturing stages and offers crate, plug-in frame, and rack products.
   • Major customers are listed in Figure 7.

Market and Financial Indicators

Analyst Insights

• The company is expected to benefit from multiple growth drivers, including the expansion of its auto parts business with Tesla, the growth opportunities in the OA segment due to industry consolidation, and the development of its internet server business.
• The gross margin for the OA segment is expected to remain stable at 19-20%, while the auto parts segment is anticipated to maintain a margin of >25%.
• The share price rally in late October suggests investor optimism, but the stock is still trading at a relatively low P/B multiple.

CMBIS Ratings

• NOT RATED: This report does not provide a rating from CMBIS.

Analyst Contact

• Wayne Fung, CFA
• Phone: (852) 3900 0826
• Email: waynefung@cmbi.com.hk

Disclaimer

This report is for informational purposes only and does not constitute investment advice. The information is based on publicly available data and may not be suitable for all investors. CMBIS does not provide individually tailored investment advice and encourages investors to consult with a professional financial advisor.

Legal and Regulatory Information

• The report is subject to various legal and regulatory disclosures, including the Analyst Certification and Important Disclosures.
• It is distributed only to specific categories of investors in different jurisdictions, such as major US institutional investors, High Net Worth Companies in Singapore, and persons within Article 19(5) of the Financial Services and Markets Act 2000 in the UK.