Key points of investment

The auto parts business is the company's number one business. The main business of Wuling Automobile Group Holdings Co., Ltd. is engaged in the sale and manufacture of automobile parts, engines and special vehicles in China. Judging from the revenue and operating profit structure, auto parts are the company's largest business. In 2016, auto parts revenue accounted for 63.2% and operating profit accounted for 62.7%. The parts produced by the company include chassis parts, welding parts, interior and exterior parts, and body accessories.

The company benefits from the development strategies of its core customers. SAIC-GM-Wuling is the company's biggest customer. The company benefits from SAIC-GM-Wuling's active “commercial transfer” strategy and overseas strategy. Specifically, the engine business focuses on NP18 and V6 engines, and the growth points of the auto parts business are mainly due to increased passenger vehicle support and overseas market development.

Our view: Overall, from an external perspective, since the main customers of the company's engine and auto parts business come from SAIC-GM-Wuling, we think the development opportunities for these two businesses mainly come from SAIC-GM-Wuling's transfer strategy and overseas market expansion, while the potential of the special vehicle market mainly comes from the NEV market. From an internal perspective, the company's capital increase for holding subsidiaries will help strengthen the company's development strength. In terms of valuation, the company currently has a market value of HK$1,157 million, corresponding to a price-earnings ratio of 7.2 times in 2016 and a net price-earnings ratio of 0.86 times.

Risk warning: declining demand from core customers, price reduction pressure from customers, fluctuations in raw material prices.