One stop shop integrated business model favours higher than peers GM ;
We recently held an update call with Xin Point management to discuss their latest development. Xin Point offers one-stop production platform to clients, which begins from components and mold designs, injection molding, plating/painting to interior assembly. This vertically integrated business models facilitate Xin Point to enjoy a higher production yields~89% on average during track record period in FY14-FY19 than other leading players, hence a higher GM during in FY16-FY18 ranged from 36.6%-41.1% than peers such as Minth 425.HK 32%-33.8% in FY16-FY18
In 1H20, due to COVID-19 outbreak which distorted production Xin Point s sales and EPS slipped 20.1%/21.7% to RMB817mn and RMB62.7mn respectively. Despite a low utilization rate at ~50%, GM still managed to grow 440 bps to 29.7%，thanks to better product mix which drove ASP to RMB5.87/pc vs. RMB~5.1/5.4/5.6 in FY17-FY19 With production fully resumed in 2H20 and hence improved utilization rate, we expect Xin Point's GM and net profit would improve HoH.
Current clients include renowned OEMs and Tier-1 supplier in US and Europe; Increasing orders from EV serve as another growth engine
China s increasing competitiveness in auto parts market, light vehicle trend and model upgrade cycle include better interior design from OEMs which require application of greater number of high-quality plastic electroplated parts and interior assembly. Xin Point s current clients include renowned OEMs and Tier-1 supplier in US and Europe, with top 5 clients accounted for ~60% of revenue.
Moreover, Xin Point has received ~RMB 590mn new orders for the upcoming five years from a globally renowned EV brand, which we believe to be Tesla as both parties have begun co-operation since 2017. We expect orders would continue to ramp up as Tesla Giga Shanghai has commenced full operation. In addition, Xin Point targets for more direct co-operation with other EV brands including the rising stars in China such as NIO.
We expect Xin Point's ASP would be able to achieve a low-mid single digit growth going forward on improved product mix. Given its leadership in the industry, and offers a one-stop shop platform to clients i.e. from components and mold designs, injection molding, plating/painting to interior assembly This vertically integrated business models facilitate Xin Point to enjoy a higher production yields~90% in 1H20 than other leading players.
Strong order book and new capacity ramp up sets up a good foundation for future growth
In 1H20, Xin Point's order book reached RMB9.4bn which has set up a good foundation for future growth in the coming 4-5 years. Upon Xin Point's Changzhou, Jiujiang and Mexico plant ramp up, which would increase Xin Point total designed capacity to 4.19mn sqm/year, this set up a good fundamental to fulfill clien's demand.
Catalysts
FY20E profit alert
Increasing order/ revenue contribution from EV brands
Increasing market awareness
Trading at FY21E 9.4x P/E, near term set back provides good entry point to ride on turnaround and increasing EV exposure story
We expect Xin Point's sales and EPS to grow 11.4%/38.9% CAGR in FY19-FY22E, driven by strong order backlog and gradual GM pickup, its FY21E 9.4x P/E~49% discount to HK, China and international peers is attractive and deserve a re-rating story. Together with its FY21E 4.5% dividend yield and strong financial position net cash ~RMB 510mn in 1H20, account for ~10% current market cap We deem Xin Point as a value play within the auto parts universe and any near-term share price set back would provide a good entry point to ride on turnaround and increasing EV exposure story. We value Xin Point at HK$6.60 based on 13.0x~1 sd. above Xin Point's average P/E since listing FY21E PE and EPS, as we notice there's an increasing risk appetite for mid-small caps YTD.
One stop shop integrated business model favours higher than peers GM ;
We recently held an update call with Xin Point management to discuss their latest development. Xin Point offers one-stop production platform to clients, which begins from components and mold designs, injection molding, plating/painting to interior assembly. This vertically integrated business models facilitate Xin Point to enjoy a higher production yields~89% on average during track record period in FY14-FY19 than other leading players, hence a higher GM during in FY16-FY18 ranged from 36.6%-41.1% than peers such as Minth 425.HK 32%-33.8% in FY16-FY18
In 1H20, due to COVID-19 outbreak which distorted production Xin Point s sales and EPS slipped 20.1%/21.7% to RMB817mn and RMB62.7mn respectively. Despite a low utilization rate at ~50%, GM still managed to grow 440 bps to 29.7%，thanks to better product mix which drove ASP to RMB5.87/pc vs. RMB~5.1/5.4/5.6 in FY17-FY19 With production fully resumed in 2H20 and hence improved utilization rate, we expect Xin Point's GM and net profit would improve HoH.
Current clients include renowned OEMs and Tier-1 supplier in US and Europe; Increasing orders from EV serve as another growth engine
China s increasing competitiveness in auto parts market, light vehicle trend and model upgrade cycle include better interior design from OEMs which require application of greater number of high-quality plastic electroplated parts and interior assembly. Xin Point s current clients include renowned OEMs and Tier-1 supplier in US and Europe, with top 5 clients accounted for ~60% of revenue.
Moreover, Xin Point has received ~RMB 590mn new orders for the upcoming five years from a globally renowned EV brand, which we believe to be Tesla as both parties have begun co-operation since 2017. We expect orders would continue to ramp up as Tesla Giga Shanghai has commenced full operation. In addition, Xin Point targets for more direct co-operation with other EV brands including the rising stars in China such as NIO.
We expect Xin Point's ASP would be able to achieve a low-mid single digit growth going forward on improved product mix. Given its leadership in the industry, and offers a one-stop shop platform to clients i.e. from components and mold designs, injection molding, plating/painting to interior assembly This vertically integrated business models facilitate Xin Point to enjoy a higher production yields~90% in 1H20 than other leading players.
Strong order book and new capacity ramp up sets up a good foundation for future growth
In 1H20, Xin Point's order book reached RMB9.4bn which has set up a good foundation for future growth in the coming 4-5 years. Upon Xin Point's Changzhou, Jiujiang and Mexico plant ramp up, which would increase Xin Point total designed capacity to 4.19mn sqm/year, this set up a good fundamental to fulfill clien's demand.
Catalysts
FY20E profit alert
Increasing order/ revenue contribution from EV brands
Increasing market awareness
Trading at FY21E 9.4x P/E, near term set back provides good entry point to ride on turnaround and increasing EV exposure story
We expect Xin Point's sales and EPS to grow 11.4%/38.9% CAGR in FY19-FY22E, driven by strong order backlog and gradual GM pickup, its FY21E 9.4x P/E~49% discount to HK, China and international peers is attractive and deserve a re-rating story. Together with its FY21E 4.5% dividend yield and strong financial position net cash ~RMB 510mn in 1H20, account for ~10% current market cap We deem Xin Point as a value play within the auto parts universe and any near-term share price set back would provide a good entry point to ride on turnaround and increasing EV exposure story. We value Xin Point at HK$6.60 based on 13.0x~1 sd. above Xin Point's average P/E since listing FY21E PE and EPS, as we notice there's an increasing risk appetite for mid-small caps YTD.
