The company mainly focuses on middle and high-end customers and continues to expand overseas markets, superimposing its own technological improvement will help the average price to continue to rise. As China's largest exporter of electroplated automotive plastic interior products, the company's main customers are first-class suppliers and medium-and high-end vehicle manufacturers such as Mercedes-Benz, Volvo, General Motors and Ford. The company's overseas revenue continues to account for more than 50% (of which the European and American markets have reached 50%), and plans to continue to expand overseas market share. In terms of technology, in addition to the traditional ABS, the company has focused on the use of advanced technology in production to meet the diversified industry needs of colors and electroplating materials, and has electroplating technologies such as PA and VM, while continuing to develop light environmental protection technologies, including coating, PVD and water-based coating technology. Under the influence of upstream price pressure, the average price of the company has maintained a high single-digit growth rate in recent years (CAGR is 7.8% in the past five years). It is expected that with the continued expansion of European and American markets and middle and high-end products in the future, coupled with the improvement of technology, the average price growth rate will be sustainable.

The 8.6 billion yuan in-hand orders at the end of 18 years will continue to provide certainty for future revenue, while the estimated production capacity of 3.76 million square meters in 19 years will support more orders in the future. At the end of 18 years, the company's on-hand order of 8.6 billion yuan is four times of revenue, which is mainly distributed in the next five years. If the order of 5.2 billion yuan is added to be confirmed, it will reach 13.8 billion yuan, which is expected to bring certainty to future revenue. With the company putting into production in Changzhou and Mexico in 19 years, the production capacity will be increased by 700000 square meters respectively. The company's 18-year capacity utilization rate is 70.4%, compared with the past-80% decline is mainly due to the interruption of production at Wuxi base due to external factors. It is expected that with the gradual recovery of utilization in the future, increased capacity and continued expansion of North American overseas customers will enable the company to take more orders in the future.

One-stop vertical production process has obvious advantages, low debt and strong cash flow. The company's unique one-stop vertical production process can not only better meet customer needs, but also closely control the production process to improve production efficiency, product quality and scale advantages. as a result, the quality rate (average-90%) and gross profit margin (average-40%) have continued to be higher than those of their peers in recent years. In addition, the company's asset-liability ratio remains at-23%, below the peer average of-40%, and ample cash flow will support the company to continue to expand capacity through self-construction and mergers and acquisitions in the future.

The government's higher requirements for electricity, environmental protection and technology lead to an increase in the threshold of the industry, and small and medium-sized enterprises that lack environmental protection qualifications may face elimination and accelerate industry integration. Due to the characteristics of high pollution and high energy consumption in the electroplating industry, the government has implemented strict environmental protection regulations, and industry participants must meet certain minimum environmental protection standards, especially the technology for industrial wastewater treatment, in order to obtain the government's operation certificate. it is expected that environmental protection electroplating will be an important direction for the development of the industry in the future.

Valuation and profit forecast: the company's EPS from 2019 to 2021 is expected to be HK $0.53,0.64 and HK $0.79 respectively, corresponding to 6.3,5.2,4.2 times of Pamp E, respectively. Since the listing of the company, the average PE has been 10 times, and the current valuation has been revised from a 18-year bottom of 5.3 times to 7.2times, but the valuation is still in a low position, with an average discount of about 35% compared with that of their Hong Kong counterparts, which is much lower than that of their A-share counterparts. According to our 19-year forecast, the company is valued at 7.5x Pmax E, corresponding to a target price of HK $4, which is 23.46% higher than the current price of HK $3.24. For the first time, coverage gives a "highly recommended" rating.

Risk tips: overseas business is affected by policies, regulations and trade agreements, industry competition intensifies, product price reduction pressure, customer demand decline, capacity expansion does not meet expectations and so on.