The “Buy” rating was maintained, but the target price was lowered to HK$18.00. Considering 1) business growth brought about by rapid growth in domestic passenger car sales; 2) business synergy brought about by further expansion of overseas market business; 3) uncertainty in overseas business growth due to gradual increase in automobile tariffs; 4) high shipping costs due to geopolitics, we fine-tuned Minshi Group (“Sensitive” or “Company”)'s 2024-2026 earnings per share to RMB 2.134 (-0.062) /RMB 2.657 (+0.027) /RMB 3.206 (-0.005).

We gave the company a price-earnings ratio of 7.2 times 2024, corresponding to a target price of HK$18.00, and maintained a “buy” rating.

In the first half of 2024, overseas business continued to grow, and gross margin increased year over year. In the first half of 2024, the company achieved revenue of RMB 11.09 billion, an increase of 13.8% over the previous year. Overseas business revenue accounted for 59.2% of total revenue, an increase of 2.4 percentage points over the previous year. Net profit attributable to the company's shareholders was RMB 1.07 billion, an increase of 20.4% over the previous year. In the first half of 2024, the company's gross margin rebounded to 28.5%, up 2.2 percentage points year over year and 0.1 percentage point month on month. The gross margin of the battery box business is expected to grow further as the overseas battery box business continues to grow in sales volume and the scale effect gradually becomes apparent. We expect the company's gross margin to return to 30% over the next few years.

The battery box business continued to grow rapidly, and the share of battery box business revenue in total revenue increased by 3.1 percentage points over the same period last year. Driven by the rapid development of car companies' electric vehicle business, the battery box business revenue accounted for 21.6% of total revenue in the first half of 2024, and the company's battery box business in the European market is expected to accelerate growth. As the penetration rate of new energy vehicles continues to increase, the battery box business will continue to expand in the Chinese market, and the business in overseas markets will also begin to increase. The company's current order volume reached RMB 236 billion, an increase of 2.6% over the previous month. Among them, the company's current order scale for the battery case business was close to RMB 125.1 billion. Coupled with the promotion of the company's plug-in hybrid model integrated die-cast battery box project, we expect the company's battery box business revenue to grow at a compound annual rate of about 29.0% over the next three years.

The smart exterior parts business continues to expand, and diversified new businesses are beginning to bear fruit. 1) In terms of the smart front face business, the industry's first PC radar cover developed by Minshi for Xiaomi — a cobblestone lidar with heating function — has been mass-produced. At the same time, Minshi North America also received related projects. A number of US/German car manufacturers have begun mass production of smart panels for electric vehicles. The company also received joint pre-research projects from Japanese/Korean car manufacturers. 2) In the smart car door business, the company obtained electric side door and hidden door handle projects from Hongmeng Zhixing.

3) In terms of the smart tailgate business, the company obtained a plastic tailgate project from China's “New Car Building Force”. We believe that Minshizheng is gradually becoming one of the world's leading suppliers of smart exterior parts, and diversified new businesses are expected to further contribute to the company's revenue.

Risks: 1) Global automotive market sales may fall short of expectations; 2) freight and raw material prices may rise; 3) geopolitics may slow business expansion.