Minshi Group is one of the top 100 global component companies and the world's invisible champion for small automotive exterior parts. The Group's predecessor was Ningbo Minfu Machinery Co., Ltd., which was established in 1992, and has a history of 30 years. After its establishment, the company's business developed rapidly. In 1997, various branches were integrated to establish Minshi Group, which was listed on the Hong Kong Stock Exchange (0425.HK) on December 1, 2005. As an excellent parts company, since 2006, the company's main business revenue CAGR is 19.7% and net profit CAGR is 12.2%. It can be said that there are few high-quality companies that have maintained such a high growth rate over a period of nearly 20 years; in 2023, it achieved revenue of 20.52 billion yuan, and net profit of 1.9 billion yuan.

The company is a scarce global target. Minshi Group is extremely experienced in globalization and has been overseas for 17 years.

Since 2007, in the process of global development, the company has accumulated rich experience including overseas factory construction and overseas operations. From acquisitions to joint ventures and self-construction, the company has gradually formed a relatively complete system for integrating global resources. If we analyze the overseas market as a whole, the company's revenue went from 0.124 billion in 2006 to 9.97 billion in 2023. The CAGR for 17 years was 29.4%, and overseas revenue accounted for more than 50% in the first half of '24. Rapid overseas growth means that the path of globalization is relatively smooth. The global factory layout is expected to become the company's “core competitiveness” under de-globalization and escalating tariff challenges.

Why are you focusing on Agile at this stage?

1. The company's growth logic is remarkable. The battery box business has recently achieved results. At the same time, the smart exterior business, as the next stage of growth, can be expected to expand in the long term. As of now, 24H1 has 125.08 billion yuan of battery case business orders. Assuming that the on-hand order release life cycle is 8-10 years, annual sales can reach 12.51-15.635 billion yuan, which greatly contributes to the company's annual revenue. Furthermore, the battery case business is an asset-heavy investment. Minshi has achieved global investment and profit. The superimposed customer structure is rich enough, and the card slots are good enough, and it is expected that the market share will continue to increase.

2. The company's current profitability and financial indicators have improved. Along with the deceleration of heavy asset investment, the company is expected to face expectations of a restoration of financial indicators and an increase in valuation. First, due to significant investment in the battery case business after 2020 and the company's maintenance of high dividends, the free cash flow was negative, which was corrected in 2023; secondly, the company's battery case business production capacity climbed downhill, and further increased gross margin, driving the company's overall gross profit margin, net profit margin, and ROE increase; finally, the company began repurchasing in the second half of 2024 and clarified future dividend expectations, and PB valuation is also at the bottom of history. We believe that as Minshi Group, which has strong global growth, the valuation can be repaired as financial data continues to be repaired.

Investment analysis opinion: We expect the company's main revenue for 2024-2026 to be 23.81 billion/28.25 billion/34.32 billion, respectively. In addition to other revenue, total revenue will be 23.91 billion/28.35 billion/34.42 billion, year-on-year growth rate of 16.0%/18.6%/21.5%; gross margin for 24-26 will be 27.4%/27.1%, respectively; net return to mother Profit was 2.25/2.68/3.17 billion yuan, with a year-on-year growth rate of 18.3%/18.9%/18.3%; compared to the previous (2024/12/06) PE was 6.5/5.4/4.6 times. Referring to comparable companies, PE was given 10 times in 2024, corresponding to a market capitalization of 22.51 billion yuan. Compared with the current (2024/12/06), there is room for a 55% increase, and for the first time, coverage was given a “buy” rating.

Risk warning: Downstream sales fall short of expectations, international trade environment risks, new business development falls short of expectations.

Investment ratings and valuations

We expect the company's main revenue for 2024-2026 to be 23.81 billion/28.25 billion/34.32 billion, plus other revenue, total revenue of 23.91 billion/28.35 billion/34.42 billion, year-on-year growth rate of 16.0%/18.6%/21.5%; 24-26 gross margin of 27.4%/27.1%, respectively; net profit to mother 2.25/ 2.68/3.17 billion yuan, the year-on-year growth rate was 18.3%/18.9%/18.3%; compared to the previous (2024/12/06) PE was 6.5/5.4/4.6 times. Referring to comparable companies, PE was given 10 times in 2024, corresponding to a market capitalization of 22.51 billion yuan. Compared with the current (2024/12/06), there is room for a 55% increase, and for the first time, coverage was given a “buy” rating.

Key Assumptions

Battery cases+chassis structural components are expected to maintain high growth, production capacity and capacity utilization rates will continue to rise, and gross margin will continue to rise. We expect the 24-26 revenue to be 4.95/7.18/10.62 billion yuan, with gross margins of 21%/22%/22.5% respectively; metal parts are traditional products, maintain small single-digit growth, and the gross margin remains relatively stable; due to the development of integrated intelligent side doors, tailgates, etc., the unit price will increase to 1500-2000, and independent customers will develop more successfully and remain high- As for teen's growth rate, we expect the 24-26 revenue to be 6.64/7.83/9.24 billion yuan, with gross margin of 24%/24.5%/24.5% respectively; the total global volume of the aluminum trim business is about 18-20 billion. The company is highly competitive in this business, and the profit margin of this business is high. The company's anodizing process is second to none, maintaining a low-teen growth rate. We expect the 24-26 revenue to be 4.85/5.43/6.08 billion yuan. The gross margin remained stable at 37%.

Different from what the public knows

1. The company's growth was significantly overlooked. Everyone believes that Minshi Group's growth as an exterior company has entered a bottleneck period, but throughout Minshi's history, the company is continuously developing new products, improving ASP, battery case business, and smart exterior components are all catalysts for the company's future growth, and the battery case business has orders of more than 125 billion yuan, which can support the company's compound growth rate of 18% or more in the next few years.

2. The company's global strength is being ignored. The company has a 17-year history of globalization and has factories all over Europe, America, Japan, and South Korea. First, as an enterprise that has already been globalized, the company's maintenance of a higher gross margin and net interest rate compared to its friends proves its excellent management strength; secondly, under anti-globalization and tariff risks, factories located in many places are potential “core competitiveness” in the future.

3. The company's subsequent dividends are expected to exceed expectations. Free cash flow was negative due to the company's rapid investment phase in previous years. Free cash flow was positive in 2023, and it is expected that dividends will restart in 2024, which may exceed expectations.

A catalyst for stock price performance

The penetration rate of new energy sources overseas is accelerating, and the company is increasing repurchases or dividends.

Core hypothetical risk

Downstream sales fell short of expectations, international trade environment risks, and new business development fell short of expectations.