20171206-中国银河国际证券-敏实集团-00425.HK-A_quality_player_in_the_global_auto_parts_industry__superior_business_growth_potential_beyond_China_7页_742kb

Minth Group Ltd Summary

Core Content

Minth Group Ltd (0425.HK) is a leading global supplier of auto body structural parts, trims, and decorative parts. The company has demonstrated strong earnings growth and is expanding its customer base and product offerings, which are expected to drive continued business growth beyond the Chinese market.

Key Financial Highlights

Business Performance in 1H17

• Revenue Growth: Total revenue increased by 25.5% YoY to RMB5,266m.
• Net Profit Growth: Net profit rose by 29.6% YoY to RMB1,085m.
• Gross Profit Margin (GPM): Maintained at 33.8%, slightly down from 34.4% in 1H16.
• Earnings Growth: Operating profit grew by 30.8% YoY to RMB1,250m.
• EBITDA: Increased by 28.3% YoY to RMB1,485m.
• EBITDA Margin: Improved to 28.2% from 27.6% in 1H16.

Market Expansion and Revenue Drivers

• Domestic Revenue: Grew by 26.1% YoY due to increased sales to Japanese and Chinese brands.
• Overseas Revenue: Rose by 24.5% YoY, driven by recovery in Europe and emerging markets like Russia, Brazil, and Mexico.
• Aluminum Products: Accounted for 21% of total sales in 2016 and contributed to stable GPM despite rising raw material prices.
• Order Backlog: Reached RMB86.5bn at the end of 1H17, equivalent to 9.2x of 2016 revenue, supporting growth for the next 7-8 years.

Earnings Growth Outlook

• 2017E Revenue Growth: Expected to be >20% p.a., with a guidance of 15% YoY.
• 2018E Revenue Growth: Consensus expects >20% p.a.
• Earnings Growth: Projected to grow >23% in 2018.
• Valuation: Currently trades at 19.1x 2017E PER and 15.5x 2018E PER.
• PEG Ratio: Implies a 0.8x PEG for 2018E, suggesting potential for share price rerating.
• Historical Valuation: The company's historical average forward PER is 11.9x, which is lower than current levels, indicating that current valuation may not be attractive relative to past performance.

Market and Regional Outlook

• China Market: Expected to grow only 1-4% in 2017, with further constraints in 2018 due to tax incentives expiry and EV subsidy cuts.
• US Market: Light vehicle sales are expected to decline due to market maturation.
• Europe Market: Auto sales rose 4.2% YoY in 10M17 but may be constrained by UK sales due to Brexit in 2018.
• Minth's Position: Despite headwinds in key markets, the company is expected to outperform the industry due to product innovation and expanding customer base.

Strategic Initiatives

• Product Innovation: Strong R&D efforts are driving higher-margin aluminum product sales and model coverage for global OEMs.
• Overseas Expansion: Utilization of overseas plants is expected to improve gross profit margins and operating efficiencies.
• Mexico Plant: Expected to become profitable in 2H17, reversing a loss-making situation in 1H17.

Valuation Concerns and Investment Outlook

• Share Price Performance: Rose 82% CYTD, outperforming the HSI Index (32% CYTD).
• MSCI Reclassification: MSCI's move to reclassify Minth from MSCI China to MSCI Hong Kong may cause a short-term share price correction.
• Entry Point: Analysts expect a good entry point after a 5-10% correction.
• Equity Rating: The analyst recommends BUY based on superior earnings growth potential and strong business expansion.

Competitive Landscape

• H-Share Auto Parts Companies:

  • Nexteer: 2016 Mkt Cap: $5,604m; 2017E PER: 18.6; 2018E PER: 15.8
  • Minth: 2016 Mkt Cap: $6,271m; 2017E PER: 19.1; 2018E PER: 15.5
  • BYD: 2016 Mkt Cap: $25,250m; 2017E PER: 36.1; 2018E PER: 24.1

• A-Share Auto Parts Companies:

  • Huayu Automotive: 2016 Mkt Cap: $12,618m; 2017E PER: 13.7; 2018E PER: 11.6
  • Ningbo Huaxiang Electronic: 2016 Mkt Cap: $2,004m; 2017E PER: 18.5; 2018E PER: 12.3
  • Beijing WKW Automation: 2016 Mkt Cap: $1,560m; 2017E PER: 16.2; 2018E PER: 6.1
  • Linyun Industrial Corporation: 2016 Mkt Cap: $1,063m; 2017E PER: 32.9; 2018E PER: 22.0
  • Ningbo Shuanglin Auto Parts: 2016 Mkt Cap: $924m; 2017E PER: 18.6; 2018E PER: 13.9

• International Auto Parts Companies:

  • Magna: 2016 Mkt Cap: $20,041m; 2017E PER: 10.7; 2018E PER: 8.4
  • Toyota Boshoku: 2016 Mkt Cap: $3,785m; 2017E PER: 9.3; 2018E PER: 9.7

Conclusion

Minth Group Ltd is a quality player in the global auto parts industry with strong growth potential beyond China. The company has robust earnings growth and diversified revenue streams, supported by product innovation and market expansion. Despite current valuation concerns, the analyst believes the steady earnings growth and improving margin profile should support a share price rerating. A short-term correction may present an opportunity for investment, with the potential for long-term value appreciation.