The “Buy” rating was maintained, but the target price was lowered to HK$22.00. Taking into account the increase in business brought about by the rapid increase in passenger cars in China and the business collaboration brought about by the smooth expansion of overseas markets, the life cycle of overseas passenger cars has been extended, causing the growth rate of passenger cars to slow down. Due to the squeezing of the gross margin of Minshi Group (the “Company”), we raised the Company's earnings per share for 2024-2025 to RMB 2.196 (+0.302)/RMB 2.630 (+0.361), plus 2026 earnings per share of RMB 3.211.
We gave the company a price-earnings ratio of around 9 times for 2024, corresponding to a target price of HK$22.00, maintaining a “buy” rating.
Overseas business performed well in 2023, and gross margin increased month-on-month. The company achieved revenue of RMB 20.52 billion in 2023, an increase of 18.6% over the previous year; excluding about 5% of the share sold to Nissan worldwide through NCIC, the company's overseas business revenue has reached about 54%. The company achieved net profit for shareholders of RMB 1.90 billion, an increase of 26.8% over the previous year. The company's gross margin recovered to 28.4% in the second half of 2023, an increase of 1.8/2.1 percentage points over the same period last year. The gross margin of the battery box overseas business is expected to rise further, and we are confident that the company's gross margin will return to 30% in the next few years.
The battery box business continued to be rapidly released, and the share of battery box revenue increased sharply (+5.4 percentage points year over year).
Driven by the rapid development of automakers' electric vehicle business, the battery box business accounted for 17.2% of total revenue in 2023, and the company's battery box business is expected to maintain rapid growth. As the penetration rate of new energy vehicles continues to rise, especially in the Chinese market, the demand for battery packs will continue to expand. The company's current orders for battery packs are close to RMB 120 billion. In addition, the company launched an integrated die-cast battery box project for plug-in hybrid models last year. We expect the company's battery box revenue to grow at a compound rate of 27.7% over the next three years.
Intelligent exteriors have begun to expand, and diversified businesses have injected new growth impetus into the company. The company successfully mass-produced intelligent light-emitting bumpers and intelligent electric side door systems in 2023, and focused on the fields of front and rear face assemblies, car door assemblies and body structural parts in several years. We believe that Minshi is gradually becoming one of the world's leading suppliers of smart exterior parts, which will surely inject new growth momentum into the company.
Risks: 1) Global automotive market sales may fall short of expectations; 2) Freight and raw material prices may fluctuate.