[Release immediately] 26 July 2018

Huazhong In-Vehicle Holdings Company Limited
(Stock code：6830.HK)

[Corporate News] Huazhong In-vehicle (6830HK) has upside-potential

[Reference from Morning Snapshot of Sunwah Kingsway (17 July)] Plant Visit Takeaway

Stable order growth accompanied by capacity expansions
The newly-built auto part plants in Tianjin and Qingdao has started mass production in June, providing full support for FAW Volkswagen's nearby production centers. The company has previously signed ~RMB250m contracts with the latter to supply components for six of its upcoming models.

The company plans to double the capacity of its Changsha plant by adding two new lines in 1H19 to produce bumpers for Audi and FAW-Volkswagen. It should increase the plant's revenue by over 20% from est. RMB20~25m in FY18 to est.~RMB30m in FY19.

Margin improvement likely to continue
Besides automation upgrades, we believe product mix optimization also contributes to margin expansion. The company no longer accepts orders or products with ASP

More expectations on JVs, but not much on T-Box
The company intends to increase investment in Ningbo Hualuote (寧波華絡特, 50% owned JV) from ~RMB150m in FY17 to ~RMB300m by end of 2020. The JV is now first tier supplier for FAW-Volkswagen, Chang'an Ford and SAIC-GM. It has also secured orders from three foreign brands for their first domestic projects in FY18. We estimate ~RMB20m profit contribution (FY16:~RMB15m) from Hualuote in FY18.

Shipment of T-Box is on schedule, but orders are limited to hardware that do not enjoy high price premium. The ASP for each T-Box turns out to be RMB200~300, less than our previous estimation of ~RMB400 (see19MAY2017snapshot). We see neither strong growth momentum nor significant topline contribution from relevant business segment at this stage.

Valued at 12.4x 2018F P/E
We remain positive on the company's fundamentals and estimate 23.1% / 24.2% increase in NP to RMB170m / 211m for FY18/19 respectively. However, we are cautious about a weak market sentiment due to a less-than-expected IoV (Internet of Vehicle) involvement. The ticker is now trading at our est.12.4x / 10.1x 18/19 forward P/E. We advise investors to hold the stock.

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