Jinwu Financial News | According to the CMB International Development Research Report, they agree with Yihe Holdings (00838) that the revenue ceiling for simply being a second-tier parts supplier is low. Its Mexican factory is an example. Although the Mexican plant achieved break-even at the operating level in the second half of last year, more than 60% of revenue for the whole year was still contributed by Faurecia. The profit margin of this part of the secondary supplier business is low. This product structure will limit the room for the profit margin of the Mexican factory to increase.
According to the bank, Yihe's advantages in molds and past successful experience as a first-class supplier to the Great Wall have boosted the bank's confidence in its transformation. The company has now received orders from Changan and is currently in negotiations with several OEMs. In addition, the new thermoforming business will also help increase profit margins and bike supporting value. The bank predicts a compound growth rate of 15% for parts revenue in 2024-25. This year's growth will be driven by Great Wall, Faurecia, and Brose, and next year mainly from Changan. The bank expects the company's 24-25 gross margin to rise steadily on the basis of 2H23.
In the first half of this year, the bank expects net profit to increase 15% year over year to HK$141 million, of which revenue will increase by 5%, gross margin will be 20.7%, and net profit for the whole year is expected to increase 20% year over year to HK$285 million. The purchase rating is maintained, and the target price is HK$1.5, based on segment valuation (HK$0.5 for auto parts: 13xFY24ep/E; HKD1 for OA business: 8xFY24ep/E).