Nomura Group-Minth Group（0425.HK)New productsoverseas orders boost growth

Nomura | Minth Group 21 August 2014
1
Nomura | Minth Group 21 August 2014
1
Nomura | Minth Group 21 August 2014
1
Nomura | Minth Group 1 September 2014
1
Nomura | Minth Group 1 September 2014
1
Rating
Remains
Buy
Target price
Remains
HKD 18.60
Closing price
1 September 2014
HKD 17.00


Research analysts


China Autos & Auto Parts
Joseph Wong - NIHK
josephmh.wong@http://wendang.chazidian.com
+852 2252 6111
Benjamin Lo - NIHK
benjamin.lo@http://wendang.chazidian.com
+852 2252 6220



1H14 results in line; new products and overseas orders to drive growth
Minth’s 12.7% y-y 1H14 net profits growth, built on 27.4% revenue growth,
was well expected by the market and should have been a non-event for the
share price, in view of the c. 8% share price rally in the two weeks before the
announcement. However, several positives highlighted during the analyst
briefing today have further assured investor confidence in Minth’s corporate
governance and near-term earnings outlook. Despite a 3% rise in the share
price today, we continue to view Minth as one of the quality plays in the
China auto-parts space for its strong overseas revenue growth coupled with
an unchallenged domestic market share leadership. Maintain Buy.
 Corporate governance – In view of the allegation initiated by the HKSFC
on 14
th
April 2014 (please refer to: Minth Group (425 HK, Buy) - Already
de-rated; wait for clouds to clear), Minth has established an independent
committee, formed by 5 non-executive directors of the company, to closely
monitor the progress of the allegation and act on behalf of the board to
select and recommend successors to the executive directors.
 2014 guidance – Minth maintained most of its FY14F guidance
announced during the FY13 analyst briefing, with that of gross margins
being 31-33%, SG&A as a % of revenues being 9-12%, R&D as a % of
revenues being 5%, effective tax rate being 15-17% and capex being
CNY1-1.2bn. All of the above are in line with our estimates.
 Anti-trust probe – Minth sees potential business opportunity in the recent
anti-trust probe should OEMs be required to open up business
relationships to non-affiliated suppliers. However, management expects
the impact to be minimal given genuine service parts for after-market sales
only accounted for c. 2% of Minth’s turnover in 2013.
 New products launched – Minth’s aluminium roof rack has been a new
revenue driver since early 2012. By 1H14, the product contributed 5.6%
(FY12: 4.0%) of total revenues. With the engagement of 5 new vehicle
programs with Audi, Bentley, Infiniti, Hyundai and Greatwall (See Fig 5),
Minth currently has a CNY3.5bn order backlog from the product.
 Future development – To leverage on lower domestic production costs
and to enjoy higher product prices offered by foreign OEMs, Minth is
aggressively developing its overseas markets, especially in US/EU. By
2018, the company targets to derive 50% (1H14: 36%) of its revenue
overseas and plans to expand its global market share to 10%. It also aims
to raise its domestic market share to 35% (1H14: 28%).
Other key takeaways
 Net profits came in at CNY562mn, up 12.7% y-y, in line with our
estimates, mainly driven by 27% revenue growth, with domestic and
overseas revenues up 21.6% and 39.3% y-y respectively.
 However, gross margins declined 0.8ppt y-y to 32.5%, owning to
continuous product price falls and rising labour costs, partially offset by
Minth Group 0425.HK 425 HK
EQUITY: AUTOS & AUTO PARTS

New products/overseas orders boost growth
Quick Note
Global Markets Research

1 September 2014
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.