Main highlight
The vehicle business is on the development track-Xinli International has obtained orders from global head car factories, and the visibility of its orders can reach more than 2 years. The company expects the display demand (TFT-LCD) of each new car to reach 4 to 5 yuan, with a gross profit margin of about 15% and 30%, while smartphone-related products will have a gross margin of about 8-9%. At present, Xinli International's main customers include Mercedes-Benz, Changan, Great Wall and other high-quality customers. Based on the rapid development of the entire new energy vehicle industry, we expect the auto business to bring 40% increase in shipments and 5-8% increase in average selling prices in 21 years. It is expected that there is room for further increase in the company's gross profit margin after achieving economies of scale in the future.
Capacity continued to expand healthily-management said the production lines of Shanwei and Renshou would be fully operational in the third quarter of 22, with a total capacity of 160000 units per month (the current utilization rates of the two plants are 75 and 55 per cent, respectively). The new production line will enable Xinli to provide integrated products to customers, and we believe that the overall profit margin may expand from 11.9% in FY21 to 14.9% in FY23. The company has no significant capital expenditure in the next two years. We expect LCD products to achieve revenue growth of 16.0%, 22.0%, 18.0% from FY21 to FY23.
Increase the stake in Xinli Optoelectronics-Xinli has bought back 15.628% of its stake in Xinli Optoelectronics from other investors, and there are no split plans for the time being, which shows the company's confidence in future development.
Trading at 8.9 times FY21E's price-to-earnings ratio, with a target price of HK $4.61, maintaining the acceleration and operational efficiency of long position Automotive shipments boosted 1QFY21's net profit and exceeded our expectations and hit an all-time high. Looking to the future, in view of the sufficient demand downstream, we believe that shipments of on-board displays should maintain rapid growth.
The profit margin of the industry will further improve and may enter the revaluation of the industry. We expect FY21E/22E/23E 's net profit to grow at a rate of 144.11 per cent, 41.47 per cent, 15.81 per cent, to HK $1.226 billion / HK $1.735 billion / HK $2.009 billion, corresponding to a compound annual growth rate of 58.73 per cent. The stock is currently trading at about 8.9 times FY21E's price-to-earnings ratio, with a potential dividend yield of 28% Murray 34%, which we don't think is expensive. Based on 14 times the inter-industry average price-to-earnings ratio, our target price is HK $4.61. We maintain long positions.