What's new

As sales of models such as Huawei’s Wenjie continue to rise, the volume ramp-up of Changying Xinzhi Technology’s alternative-fuel vehicle (AFV) electric motor business accelerates. The firm set up a new subsidiary in Ningde, Fujian province to explore new business and increase investment in the AFV business.

Comments

As a core supplier of Huawei’s automotive electric motors, the firm fully benefits from increasing sales of models equipped with its products, including the Wenjie M5, M7, and AVATR series. The firm produces stators and rotor assemblies. Its products have entered the supply chains of Seres, Chang’an Auto, BAIC Group, and companies that collaborate with Huawei. The firm is also an exclusive supplier of several models, including Wenjie, AVATR, and many other popular models. Monthly sales of the Wenjie M5 have been climbing since its launch and reached 7,807 units in July. The Wenjie M7 received over 50,000 pre-orders within 48 hours after its launch on July 4. AVATR 11, a collaborative effort between Huawei, CATL, and Chang’an Auto, is scheduled to launch on August 8. We believe that with the expansion of Huawei’s automotive ecosystem, sales of representative models such as the Wenjie series will continue to grow and new model launches will likely be frequent, boosting the business of core suppliers. In our view, as the exclusive supplier of Huawei’s stators and rotor assemblies, the firm will fully benefit from the increasing sales of relevant models, and we expect rapid growth in revenue and profit.

ASP of stators and rotor assemblies may rise to Rmb5,000; solid cooperation with BYD; the firm is carrying out new automobile manufacturers-related projects. The firm has expanded from stator cores to stators and rotor assemblies, increasing the value of its products from Rmb500-800 per motor to Rmb2,300-3,000 for models with one motor, and around Rmb5,000 for models for two motors. According to the firm’s 2Q22 announcement, it became a designated supplier of BYD's stator and rotor business, with the first project amounting to Rmb229mn. As BYD’s supply chain is becoming more open, the firm may see rapid market share growth as a new supplier, in our view. Furthermore, the firm's business with Li Auto, XPeng Motors, NIO, and other emerging auto brands is progressing smoothly. It expands its stator and rotor assembly business via tier-1 companies, including UMC, Bosch, and Schaeffler.

We believe the firm’s AFV electric motor business will develop rapidly with high visibility and elasticity due to increasing new clients and models equipped with its products.

The firm’s sub-subsidiary established a new subsidiary in Ningde, Fujian Province to explore new business. The firm’s holding sub-subsidiary established a wholly-owned subsidiary in Ningde, Fujian province, with Rmb30mn of its own funds. We believe it is a technological monetization of the firm’s years of experience in the metal stamping process and the mould, as well as its efforts to build capacity near core clients and expand its AFV business. The new business may become the second growth driver after the electric motor business.

Financials and valuation

Given the development of the electric motor business and the exploration of new business, we maintain our 2022 and 2023 net profit forecasts at Rmb236mn and Rmb304mn. The stock is trading at 31.0x 2022e and 24.1x 2023e P/E. We maintain OUTPERFORM and a TP of Rmb26.20 (45.0x 2022e and 34.7x 2023e P/E), offering 44.7% upside.

Risks

Disappointing development of AFV business; disappointing cost control.