1H22 results in line with market expectation

Anjie Technology announced its 1H22 results: Revenue and attributable net profit rose 21.35% and 381.16% YoY in 1H22 to Rmb1.96bn and Rmb137mn, and grew 2.2% and 117.2% YoY in 2Q22 to Rmb906mn and Rmb52mn, in line with market expectations.

Trends to watch

Steady revenue growth from functional parts and precision structural parts; gross margin up. In 1H22, revenue from functional parts, precision structural parts and modules increased 32.05% YoY to Rmb1.13bn, mainly driven by steady revenue growth at major international clients. The segment’s gross margin picked up 5.61ppt YoY to 20.72% due to falling revenue contribution from low-gross margin Android business. Revenue from information storage dropped 20.59% YoY to Rmb272mn, while gross margin stabilized at 23.71%. With the peak season for consumer electronics approaching, we expect new products launched by major international clients in 2H22 to boost growth in the firm’s revenue from functional parts and structural parts.

Robust growth of auto electronics sustained; gross margin slightly down. In 1H22, revenue from alternative-fuel vehicle (AFV) products rose 52.84% YoY to Rmb548mn due to continued increase of shipments at international clients, while gross margin edged down 1.38ppt YoY to 28.96%. Anjie plans to strengthen cooperation with downstream device clients in product R amp;D. It will continue to help international clients expand its factory in Thailand and build new factories in Germany and the US. Moreover, it may also introduce more new products such as AFV high-power wireless charging systems and key components for hydrogen fuel batteries. We are upbeat that Anjie’s auto electronics revenue will maintain robust growth driven by increases of the firm’s ASP and shipments to large clients.

Overall expense ratio stable; OCF markedly up. In 2Q22, selling, G amp;A and R amp;D expense ratios stood at 2.4%, 7.5% and 8.7%. Operating cash flow (OCF) as of end-2Q22 reached Rmb284mn, turning positive from -Rmb112mn in 2Q21, thanks to accelerated payment collection.

Financials and valuation

Given impact of domestic COVID-19 resurgence on shipments of auto electronics, we cut our 2022 net profit forecast by 8.8% to Rmb337mn and keep 2023 forecast unchanged. The stock now trades at 31.5x 2022e and 23.3x 2023e P/E. We maintain OUTPERFORM and TP of Rmb18.00 (mainly reflecting long-term growth prospect of auto electronics business), implying 36.5x 2022e and 27.0x 2023e P/E, offering 15.9% upside.

Risks

Impact of COVID-19 worse than expected; shipments at AFV clients in North America disappoint; Anjie’s subsidiary Weibrass Precision continues to incur losses.