Improving fundamentals
Improving global vehicle market outlook. We believe the worst should be behind and anticipate supply of critical auto parts and components to slowly recover. Global vehicle output is expected to increase across the major auto markets in which Minth has exposure to. The release of the underlying pent-up demand and channel restocking are volume production drivers.
Due to tight supply of auto chips, global OEMs have rescheduled and delayed certain new project launches. Despite the market challenges, total new contract value is estimated to reach a record Rmb9-10bn in 2021, as automakers restart their new model programmes, hence supporting Minth’s future earnings stream.
Innovative products catering to fuel efficient and electric vehicles positive on profit margins. The strong surge in the global EV market is positive for Minth, given its rising aluminum parts and battery housing exposure. These products are expected to post strong expansion of 30-50% annually in the medium-term. The company is constantly expanding the EV business. The entry into the supply chain of several NEV makers such as Tesla, NIO, Li Auto and Xpeng Motor is expected to drive its NEV business. Higher sales of innovative products is positive on future profit margins.
Since raw materials account for about 60% of total cost of production, lower raw material prices is also positive on future product margins as well. Hence, we forecast gross margins to improve from a low of 31% in FY20 to 32.5% in FY23F.
Solid market share. Given the company’s strong product development capability, it has a sizeable market share in China and globally. For instance, it commands over 20% share of the metal trims market (globally and domestic). Its market share in the battery housing is expected to grow rapidly from the current 5%, underpinned by a robust domestic NEV industry and entry into several NEV makers’ supply chain network