Investment positives

As the only listco under Dongfeng Group to focus on the auto parts business, Dongfeng ElectronicTechnology Co., Ltd. (DETC) mainly supplies auto parts for Dongfeng Trucks and Dongfeng Peugeot-Citroen Auto.Through its alliance with Visteon, DETC provides interior parts for Dongfeng Trucks, Dongfeng PV, DongfengPeugeot-Citroen Auto, Dongfeng Nissan and Dongfeng Honda; it also provides brake systems for Dongfeng Trucks.Thanks to Dongfeng Group’s consolidation of its auto parts business, DETC will likely become the Group’s capitalplatform for business integration.

Rapid growth of auto electronics; self-developed products to benefit from the Internet of Vehicles (IoV).Shanghai Visteon (in which DETC holds a stake) supplies auto electronics for Shanghai Johnson Control and its capacityof CMU & HUD has started to ramp up; its entry into the supply chain of SGM, Mazda and Honda should help driveDETC’s earnings from auto electronics. Its subsidiary Dongfeng Auto Electronics enjoys strong technology capabilities inauto electronic products like CV combination instruments, automotive sensors and body controllers. Moreover, thecompany has also started mass production or developed a pipeline of other products including ABS, HEV driving motorsand autonomous navigation systems for IoV.

Cooperation with foreign partners in trim parts and brakes; integration of non-ferrous casting. In recentyears, DETC has strengthened its cooperation with foreign players like Antolin and Knorr-Bremse in autointerior/exterior parts and brake systems to gain access to their technology and supply chain resources. The continuedexpansion of client resources for trim parts and brake systems should further enhance its profitability. In the meantime,DETC’s integration of its casting business via Zhanjiang Deni is expected to create a new earnings engine.

Financials

We expect 2015/16/17e revenue to be Rmb4.87bn/5.10bn/5.37bn and net profit to be Rmb187mn/202mn/222mn (aCAGR of 7.6%), or EPS of Rmb0.60/Rmb0.64/Rmb0.71.Valuation and recommendationDETC stands to benefit from the fast-growing auto electronic business, but the stock lacks short-term catalysts as ittakes time for Dongfeng Group to consolidate its auto parts assets. Initiate with HOLD and set our TP at Rmb20,implying 31x 2016e P/E.RisksSales volume misses expectation.