Investment Thesis

Minth's operating income keeps increasing rapidly since 2017.

It is expected that the increasing trend of the gross profit margin is to continued.

We maintain the opinion that Minth's existing businesses indicate a robust growth momentum, while great potential boom lies before the new ones.

We believe that it is reasonable to give the company a valuation of 19.9x/16.5x P/E in 2017/2018, equivalent to target price of HK$ 41.45 and Accumulate rating.

Keep the rapidly growing revenue, maintain existing orders and undertake new business

With the explosion of demand for aluminium products, the operating income of the Company keeps increasing rapidly since 2017, and the growth rate of the first five months maintains at approximately 20 percent. In particular, the domestic growth rate is greater than that of the overseas business, with the former greater than 20 percent, while the latter slightly lower than 20 percent. In 2016, the aluminium products of the Company report revenues of two billion, which account for 21% of the total revenues. In 2017, the revenues from aluminium products are expected to increase to about three billion, up 50% year-on-year. In 2019 or 2020, the revenues from aluminium products are expected to be five to six billion.

Due to the lead time of part orders, 95% of sales volume in 2017 has been fixed in advance. Since there were 4.4 billion new orders in 2016, the new orders in 2017 are expected to increase to 4.5 billion. Currently, the existing orders of the Company amount to 79.3 billion yuan, 8.4 times the total revenues in 2016. Therefore, the visibility of the future performance is relatively high. The total receivables for 2020 are planned to be over 20 billion by the Company, and the average supporting amount for each car increases from 330 at present to 400 to 500 yuan/car.

Solid financial performance and attractive dividend policy

The Company has a solid financial condition, with only 28% asset- liability ratio and 2.9 billion cash in hand. Besides, its operating net cash flow has increased year by year, and the capital expenditure in 2017 is expected to reach 1.3 - 1.6 billion. With respect to the early personal changes, the Company has made some arrangements. The founder of the Company, Mr. Qin will take in charge for about 1.5 years before the new CEO is chosen and appointed. In addition, the new financial director has been appointed. With the end of the crisis, recently the management has demonstrated their confidence in the Company by increasing their stake. It is believed that the 40% dividend payout ratio will maintain and even increase.

The operating capability of overseas business is improved and the trend of stably growing gross profit margin is expected to maintain

After accumulation for many years, the factories set up at abroad by the Company, such as those in Mexico and America, have been operated gradually smoothly with increasing operating benefits, and the drag of overseas business on the overall gross profit margin is decreasing little by little. In recent years, the Company has successfully expanded the new business orders from ABB, a luxury car brand.(The company is equipped with 30% to 50% of BMW models, including the whole life cycle models of the three and five series.) In the future, the European market will increasingly take the role of the growth engine for the overseas business.

The gross profit margin of the Company provided by it for 2017 is from 34% to 36%. It is thought that the increasing trend of the gross profit margin is expected to maintain, with the aid of increasing demand for aluminium products and decreasing drag from overseas market.

Financials

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