Core views:
On the basis of the precision die-casting structural component business, Minglida has also built its presence in injection molding plastic structural components, profile stamping structural parts and precision dies. It has become a "one-stop" multi-type precision structural component provider with the accumulation of rich customer resources in downstream industries including photovoltaics (PV), security, automobiles, and consumer electronics. Benefiting from the growth of PV, new energy vehicles (NEVs) and consumer electronics industries, Minglida achieved high growth rates in operating revenue and net profit in 1Q22 and is likely to maintain sustained growth in the future. Its operating efficiency is significantly higher than the industry average level, providing strong support for its broad development prospects. Considering Minglida's high growth prospects and the valuation of comparable companies, we assign 30x 2023E PE to derive a target market cap of Rmb16.6bn, implying a target price of Rmb41, and initiate coverage with a "BUY" rating.
Abstract:
Solid presence in precision structural components, fast-growing operating revenue and net profit.
Minglida produces three types of precision structural components, namely die casting, injection molding and profile stamping, and dies. It has accumulated rich customer resources in its downstream fields and become a "one-stop" service provider for precision structural components. In 1Q22, thanks to the increased orders from PV, energy storage and automotive sectors, Minglida achieved revenue of Rmb580mn (+55.7% YoY) and attributable net profit (ANP) of Rmb57mn (+82.5% YoY).
Deeply engaged in profile stamping, which contributes to the main profits.
Minglida has developed precision die-casting structural components in the fields of PV, security and so on, and entered the supply chain of companies such as SolarEdge, Sungrow, Axis and Dahua. Since 2014, the Company has gradually expanded the application fields in automobiles, consumer electronics, etc. and provides services to customers including BYD and Geely. Stamping structural component business is the major contributor to Minglida’s revenue, posting revenue of Rmb819mn (+50.8% YoY) and profit of Rmb190mn (+60% YoY) in 2021, accounting for more than 50% of the Company’s total.
Expanding precision plastic injection molding and profile stamping business to meet various needs of customers.
In 2014, Minglida began to develop the plastic injection molding business, providing general solutions for SolarEdge, SunEdison and other customers. Revenue from the business continues to grow, also accounting for nearly 30% of the Company’s total gross profit in 2021. In 2017, Minglida invested in the profile stamping production line to provide products for Hikvision, Honeywell, SolarEdge and other end customers. In addition, it has reached cooperative agreements with Yanfeng, Wingtech and Innoviz Technologies, boasting enriched customer resources.
The Company is likely to be fully benefit from the growth of PV, NEVs and consumer electronics industries.
The PV inverter market has great potential and Minglida will likely increase supply to the leading manufacturers in the future. The NEV industry has entered a new fast-growing phase of “1-N”, with increasing sales of automotive structural components in the upsurge of demand from BYD, CATL and other new customers. The sales of automotive structural components will likely increase accordingly. In addition, with the expansion of new consumer products especially electronic cigarettes, Minglida’s supply of relevant precision components to PMI and other customers will likely increase at a high speed.
Top-ranking ROE in the industry with high operating efficiency.
In 2017-21, the ROE of Minglida was 6.39%/26.22%/21.28%/30.36%/20.61% respectively, the asset turnover rate was 0.73/0.82/0.96/0.96/0.98 times, and the inventory turnover rate was 6.16/5.66/6.15/6.4/5.54 times, with the latter two both outperforming the average of comparable companies. Minglida also has a healthy cost structure, strong solvency and good bargaining power. With the rapid growth of profit, the expense ratios are likely to decrease gradually.
Potential risks: The development of PV, new energy vehicles, consumer electronics industries missing expectations; the development of technological progress not up to expectations; intensified competition; new customer expansion missing expectations; fluctuation of raw material costs.
Investment recommendation: On the basis of the precision die-casting structural component business, Minglida has also built its presence in injection molding plastic structural components, profile stamping structural parts and precision dies. It has become a "one-stop" multi-type precision structural component provider with the accumulation of rich customer resources in downstream industries including PV, security, automobiles, and consumer electronics. Benefiting from the growth of PV, NEVs and consumer electronics industries, Minglida achieved high operating revenue and net profit in 1Q22 and is likely to maintain sustained growth in the future. Its operating efficiency is significantly higher than the industry average level, providing strong support for its broad development prospects. We forecast 2022E/23E/24E operating revenue of Rmb3.1bn/4.9bn/7.5bn and ANP of Rmb320mn/550mn/890mn. Based on the average valuation of 18x 2023E PE (Wind consensus estimates) for comparable companies, including Wencan (603348.SH), Hongtu Technology (002101.SZ), IKD (600933.SH), Tianjin Ruixin Technology (300828.SZ) and Cheersson Precision (002976.SZ), considering Minglida's high growth prospects, we assign 30x 2023E PE to derive a target market cap of Rmb16.6bn, equivalent to a target price of Rmb41, and initiate coverage with a "BUY" rating.
