20220607-招银国际-力世纪-00860.HK-Foundation_laid_for_riding_the_wave_of_e-mobility_6页_663kb

Apollo Future Mobility (860 HK) Summary

Core Content

Apollo Future Mobility Group (Apollo FMG) has undergone a significant transformation since 2016, shifting from a jewelry and watch retailer to an automotive player through a series of mergers and acquisitions (M&As). The company is now positioned to ride the wave of e-mobility, with a strategic focus on luxury electric vehicles (EVs) and consumer experience. WM Motor, which became the largest shareholder in 2021, plays a key role in this transition, providing manufacturing resources and strategic direction.

Main Business Segments

1. Automotive Manufacturing

• Hypercar Business: Apollo FMG acquired Apollo Automobil in 2020, which specializes in hypercar manufacturing. It has sold all 10 Apollo Intensa Emozione (IE) models, with a price tag of around HK$ 20 million per unit.
• Luxury EVs: The company plans to launch luxury EVs in 2024, leveraging the Apollo E Vision S concept car. The first model is expected to be priced around RMB 1 million with an annual sales target of a few tens of thousands of units.
• Global Expertise: The company utilizes a global team, including German designers, Japanese powertrain specialists, and Chinese digitalization experts, to provide a unique consumer experience.

2. Engineering Services Outsourcing (ESO)

• Apollo Advanced Technologies (AAT): Formed by acquiring GLM (Japan) and Ideenion (Germany), AAT offers a range of engineering services including prototyping, design, and powertrain development.
• Revenue and Growth: ESO revenue surged by 238% in H1 FY9/22, contributing significantly to the company's overall growth. The ESO business has a gross margin of about 35%, making it a key profit driver.
• Licensing Income: Apollo FMG has a licensing agreement with De Tomaso, an Italian supercar brand, which has contributed to licensing income. The per-unit fee decreases as more units are sold, with a minimum license fee of HK$ 78 million.

3. Investments in Divergent and EV Power

• EV Power: A leading EV charging operator in China, EV Power is valued at HK$ 2.5 billion in total, with Apollo FMG holding about 28% of the equity. It is the 8th largest charging operator in China with 36,500 public charging piles.
• Divergent: A US-based 3D metal printing start-up, Divergent is valued at around US$ 700 million in its latest round of financing. Apollo FMG holds 17% of Divergent, valued at approximately HK$ 900 million.
• Synergy Potential: The company sees potential synergies between its automotive manufacturing and Divergent’s 3D printing technology, which could enhance efficiency in engineering processes.

Financial Highlights

• Revenue Growth: In H1 FY9/22, Apollo FMG's revenue rose by 61% HoH, with hypercar business growing by 895% HoH and ESO by 238% HoH.
• Gross Margin Expansion: Gross margin widened by 4.4 ppts to 28.9%, driven by ESO (35%) and licensing (100%) businesses.
• Net Profit Turnaround: H1 FY9/22 marked the first time the company reported a net profit, indicating a successful shift in business focus and strategy.

Shareholding and Market Performance

• Shareholding Structure: WM Motor Holdings holds 28.5% of Apollo FMG, the Ho family holds 13.2%, and others hold 59.8%.
• Current Price: HK$ 0.34
• Market Cap: HK$ 2.768 billion
• Share Performance: The stock has declined by 33% over 6 months, with a relative performance of -21.6% compared to the market.
• CMBIGM Ratings: The stock is currently "NOT RATED" by CMBIGM.

Strategic Outlook

• Consumer-Centric Approach: The new management emphasizes providing a unique consumer experience throughout the vehicle lifecycle, rather than focusing solely on vehicle innovation.
• Future Development: While the management has not disclosed further details, the company's strategic direction and investment in key automotive technologies suggest a promising future in the e-mobility sector.
• Execution Risk: The success of the company's strategy depends on the efficient execution of its in-house R&D initiatives and the ability to meet consumer expectations with its luxury EVs.

Conclusion

Apollo FMG is transitioning from a traditional retail business to a leading player in the e-mobility sector. Its restructuring, strategic acquisitions, and investments in key technologies position it well for future growth. The company's focus on consumer experience and integration of global expertise could drive innovation and profitability in the luxury EV market. However, the execution of its strategy remains crucial for long-term success.