敏实集团(0425.HK)：Initiate BUY with TP of HK$33.6，implying a 15% upside potential

机构：东方证券

评级：买入

目标价：HK$33.6 

Minth is a leading auto parts supplier in China, most of its customers are top global auto makers such as Toyota, Honda, Ford and GM. With strong R&D capability and diversified manufacturing bases, the group gains lots of chances to develop new products for multinational auto makers. Besides, the automotive lightweight trend is expected to favor Minth and we expect its GPM to climb up in 2019-2020 on the back of the increasing contribution from high-margin aluminum products. Given the stable growth of Minth’s orders backlog, we believe its sales continue to rise steadily. Initiate BUY with TP of HK$33.6, implying a 15% upside potential. 

New aluminum products boost Minth’s GPM growth：The increasing demand for lightweight auto materials is likely to boost global aluminum sales. In order to grab the lightweight growth trend, Minth successfully develop new aluminum door frame and aluminum battery pack and those products will be launched in 2019/2020. With the increase of aluminum products sales, we expect its aluminum sales contribution to rise from 25% in 1H2018 to 35% in 2020E. Given the higher margin of aluminum products (35%-40% vs steel products 30%-33%), Minth’s sales and GPM growth are expected to accelerate in 2019E-2020E. 

Gaining competitive advantages with diversified manufacturing bases: Minth operates over 40 factories including 6 plants in German, Mexico, U.S and Thailand, which support it to gain orders from multinational auto makers. The leading technology and innovative skills lead the group to establish long term relationships with its customers. Given the continuous expansion in overseas, we believe Minth can gain competitive advantages and enhance the penetration worldwide. 

Solid balance sheet: Minth has a solid balance sheet with operating cash inflow for 10 consecutive years, given the net cash position, we believe Minth would not be easily vulnerable in economy downturn. 

The escalation of trade war may harm Minth’s profit: Chinese-made US products accounted for 7% of Minth’s total sales, the tariff imposed by the US government may put pressure on Minth’s US sales. In addition, the escalation of trade war may lead the OEMs to adjust down their sales forecast, which may also harm Minth’s sales and profit. 

Initiate with a buy rating. Given that Minth gains c.10% of global exterior auto parts market shares, we believe its strong R&D capability can allow it to secure more orders from global auto makers. We initiate buy rating with target price of HK$33.6, suggesting 15% upside potential. Our target price is based on the valuation of DCF methodologies with WACC of 11.0% and terminal growth of 3%. This implies a forward (FY18E) P/E of 15.3x and forward (FY18E) P/B of 2.5x.