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宏发股份:Re-rating on the auto electrification

评论: 0 | 发布者: shangshiguanli

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Accelerating automotive relay content increase is boosting 2018-21E growth

Hongfa is the second largest relay maker globally with a 13% market share.We expect it to deliver a 28% EPS CAGR in 2018-21 on 1) strong automotivegrowth due to EV/ADAS proliferation, 2) organic home appliance/power relayorders on smart home/overseas expansion, and 3) a continuing marginexpansion (given mild price competition and a lengthy verification process).Hongfa is sampling several new EV orders (e.g. Tesla, Geely, Ford, GM) byleveraging its high HVDC relay and long-term partnerships with these OEMs intraditional automotive relays. We believe structural growth in EVs representsupside potential to the current consensus estimate. Initiating with Buy.

Rising smart car and ADAS/EV order gains from tier-1 auto OEMs

We expect Hongfa to generate 25-40% of its profit from automotive/EVs in 2018-21 at a 25-30% revenue CAGR, driven by ASP hikes, thanks to strong high-voltage direct current (HVDC) EV relay demand (ASP per car is 10x higher than conventional relays) and continuing auto relay content growth. By offering high-precision HVDC EV relays, Hongfa is qualified by CATL, BAIC Motor, and Volkswagen. The company is also sampling several new EV orders (GM, Ford, Geely). Due to a lengthy/strict qualification process on safety requirements, Hongfa enjoys an early mover advantage over peers. We believe that mild competition and production scale/enhanced efficiency will help Hongfa post a continuing 0.5-1pt. auto margin expansion in the next few years.

Smart home theme + power replacement cycle ensure stable growth ahead

Hongfa is the largest home appliance relay maker globally. Thanks to continuing relay content increases on the smart home trend and mild price competition (with peers like TE and Panasonic exiting the market), we expect Hongfa will sustain a 5-10% revenue CAGR and 36-37% GPM in 2018-21. As a leading power relay maker, it benefits from China’s smart meter replacement cycle starting in 2019. The company is expanding its overseas market share by cooperating with major grids in Asia, the EU, and the US. We assume Hongfa will achieve a 10%+ revenue CAGR from power relays in the next 3 years.

Valuation and risks

We base our target price of RMB53.2 on 28x 2019E P/E or 1.0x PEG (in line with the Asian peer average of 20-30x P/E or 1.0-1.2x PEG). We think its valuation is justified by a promising EV sector outlook and its technology leadership. Risks: slower EV growth and unfavorable FX. (See page 4).

(见习编辑:李洪力)
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