The Company is mainly engaged in the manufacturing of auto parts and produces some aviation products. Its auto part products mainly include automotive sealing strips, locks, electrical switches, wipers and filters, and contributed revenue of more than Rmb1.3bn in 1H12 (including equipment manufacturing), making up 92% of its total turnover. Its aviation products mainly include air-conditioning system, fuel system, electrical switches and the like, and contributed a turnover of ~Rmb100mn in 1H12, making up 7% of its total revenue.

It is expected that auto sales volume will grow by ~4% in 2012E and auto demand will grow by 6%~8% to 20.7mn units in 2013E, which will underpin the steady growth of its auto part business. In 2013E, sales volume of passenger cars (in narrow sense) is expected to see a steady growth at a rate of 8%~10%, largely driven by demands in the second- and third-tier cities, and sales volume of commercial cars is expected to see a positive growth, backed by accelerating investment growth and expected recovery of macro economy. Generally speaking, 2013E car demand is projected to grow by 6%~8% YoY. Given a wide client base (covering major JV brands and proprietary brands) and an extensive product line (being used in passenger cars and commercial cars), the Company’s revenue and profits are expected to grow steadily.

Aviation armament is expected to see intensive upgrading. With the growth of civil aircraft demand, aviation business is expected to pick up. Uncertainty about China’s surrounding security situation has become heightened as the U.S. shifts its strategic focus eastwards. Meanwhile, compared to potential rivals, China’s navy and air force are less developed. Therefore, it is necessary for China to further develop its navy and air force. We believe that China will intensively upgrade its navy and air force armament during the 12th Five-Year Plan period. The Company enjoys technical edges in aviation product manufacturing, which are used in some of domestic major fighters. As such, it is projected to benefit from faster development of air force armament. The development of home-made large aircraft and general aviation will help to expand the market potential of civil aircrafts, thus benefitting the Company’s development.

The Company’s short-term positioning is still unclear and follow-up capital operation remains to be observed. AVIC General Aircraft, the Company’s actual controller, owns four listed companies, namely, AVIC Heavy Machinery (600765), Guihang Automotive (600523), AVIC Sanxin (002163) and AVIC Electronic Measuring Instruments (300114). As far as the businesses and positioning of these four companies are concerned, Guihang Automotive is more suitable for an integration platform for general aircrafts. However, as the Company’s current principal business is not aviation business and that AVIC’s auto part business is distributed among several listed companies, the industrialized integration is hard to be fully achieved. Meanwhile, the profitability of the general aircraft sector is limited as the opening of low-altitude airspace is still at pilot stage. All told, capital operation is less likely at present. We view that the Company’s follow-up capital operation are uncertain given its implicit short-term positioning