Investment positives

We initiate coverage on CWB Automotive Electronics Co., Ltd. with an OUTPERFORM rating and a target price of Rmb36.70, implying 46x 2022e P/E.

Why an OUTPERFORM rating?

Focus on connectors for automotive electronics and consumer electronics. In addition to connector products, CWB leverages its connector technology to develop integrated products including modular components for transmission management and steering systems. As a result, CWB’s product value per vehicle has increased substantially. In 2020, CWB’s automotive electronics business and consumer electronics business reported revenue of Rmb836.5mn and Rmb268.7mn, accounting for 69.6% and 22.4% of its total revenue

Highly customized products; close partnership with international giants on the back of competitive advantage in mold development and automation of production lines. CWB mainly offers customized automotive electronics products to international leading automotive electronics manufacturers such as Bosch, BorgWarner, and UAES. The company has competitive advantages in mold development, automation of production lines, and partnership with downstream clients.

Strong technology in high-voltage connectors; sales of products for alternative fuel vehicles (AFV) growing rapidly. Demand for high-voltage connectors is rising strongly. According to our estimates, the domestic automotive connector market size may reach Rmb39.5bn in 2021 and Rmb83bn in 2025, implying a CAGR of 20.4%. CWB is an electric drive system supplier of Volkswagen (VW) MEB platform value chain, and supplies products in batches to new models of Great Wall Motors (GWM) and Chang’an Auto. In addition, a number of AFV connector projects are being developed. We expect high-voltage products to serve as a new growth driver for CWB.

How do we differ from the market? While the market is concerned that CWB has limited motivation to develop clients, we believe that partnering with international leading tier-1 auto parts suppliers can help CWB acquire more customers in the medium and long term.