Adequate orders in hand, guarantee stable growth in performance
The joint venture company Ningbo Hualuote new plant has been put into operation and has become a new profit growth point: Ningbo Hualuote Automotive Interior Co., Ltd. was established in March 2016, and was jointly established by Huazhong Holdings, German Lecona and Zhupete. Cheng, in which Huazhong Holding's equity accounted for 50%. The joint venture company produces high-end automotive fabric products, such as automotive interior pillar fabrics, ceiling fabrics, sun visor fabrics, and skylight fabrics. The joint venture factory has maintained stable cooperative relations with FAW Volkswagen, Audi, Shanghai Volkswagen, Changan Ford and Volvo. The new factory has an investment of 300 million yuan and a plant area of ​​more than 20,000 square meters. The new factory adopts Germany's complete set of advanced technology production technology, and has the top production capacity of high-end automotive fabrics such as warp knitting, water washing stereotypes, dyeing and post-processing stereotypes. It is estimated that by 2020, the sales of the new plant in Hualuo will exceed 500 million yuan.
Vigorously develop plastic-based steel technology, orders from new energy vehicles are gradually increasing: According to the statistics of the Automobile Industry Association, the production and sales volume of new energy vehicles in China was 77,000 and 78,000 respectively in September, up 79.7% and 79.1% respectively. In the first nine months of 2017, the cumulative production and sales were 424,000 and 398,000, respectively, with year-on-year growth of 40.2% and 37.7% respectively. It is estimated that the annual sales volume will exceed 700,000 units, showing a low growth rate before and after the new energy vehicle industry is experiencing an explosive growth period. Huazhong's plastic-generation steel technology is a new plastic-based material that replaces traditional steel as the main raw material for body parts, including engineering plastics, carbon fiber, aluminum alloy, and composite materials. Reduces the weight of the product to 1/4 to 1/8 of the original weight, reducing energy consumption. The company is actively expanding its development in the field of new energy vehicles and has already received orders for new energy vehicles. It is expected to begin delivery in 2018.
Target price of HK$1.07, Buy rating: We believe that Huazhong is a high-quality auto parts company, which has already received more than 10 billion in-hand orders and needs to be delivered by 2021. The future performance will maintain steady growth. We raise our target price to HK$1.07, which has a 24% upside potential compared to the current price, which is equivalent to 12.2x and 10x forward P/E in 2017 and 2018, and a Buy rating.
Risk warning: product recall; industry competition intensified
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