We believe that EVA's auto parts business is on track to transform into a tier-1 supplier with more orders from OEMs to lift FY25E revenue, based on our recent meeting with management. Although we cut our FY24E revenue and NP by 3% and 9%, respectively, amid its cautious approach to maintain GPM, we see higher earnings visibility in FY25E. We estimate its dividend yield to be 7% now. n More new orders from Changan and Stellantis. EVA's Chongqing plant starts to supply Changan (000625 CH, NR) from mid-Sep as previously scheduled. Total order backlog from Changan has increased to HK$1bn, with a revenue contribution of about HK$130-140mn in FY25E, according to management. Its Wuhan plant has also secured new orders from Stellantis (STLA US, NR) and we expect more orders from Stellantis in EVA's Mexico plant. Therefore, we project auto parts revenue to rise 15% YoY to HK$2.34bn in FY25E.

A more cautious approach to maintain margins. We cut our FY24E revenue forecast by 3% to HK$6.38bn, as new orders mainly start from FY25E and EVA has been cutting low-margin orders to sustain margins amid industry headwinds. We therefore maintain our GPM forecasts at around 21% in FY24-26E.

OA profit to be stable. EVA's office automation (OA) GPM in 1H24 widened by about 1ppt YoY amid 2.5% YoY growth in the segment revenue. We expect OA GPM to continue widening HoH in 2H24E after the inventory destocking in 1Q24 (which resulted in a 2% YoY decrease in its Vietnam plant in 1H24).

Earnings/Valuation. We revise down our FY24/25E net profit estimates by 9%/4% to HK$260mn/301mn, respectively. We project FY25E operating profit to rise 15% YoY amid 8% YoY growth in revenue and better SG&A control. We expect interest expense to decrease in FY25E, which is to be offset by a possible higher tax rate. The stock is now trading at 4.3x our FY24E P/E. We expect the company to maintain a 30% dividend payout ratio, which would translate into a dividend yield of 7%.

We maintain our BUY rating but cut our target price slightly from HK$1.50 to HK$1.40, based on the sum-of-the-parts (SOTP) valuation (details in Figure 6). We value HK$0.5 per share (unchanged) for its auto parts business, based on 11x our FY25E P/E (prior 13x our FY24E). We value HK$0.90 (previously HK$1.00) per share for its OA business, based on 7x our FY25E P/E (prior 8x our FY24E). We lower our valuation multiples as we roll over to FY25E to reflect higher uncertainties. Key risks to our rating and target price include lower order intakes and GPM than we expect.