从二级供应商过渡到一级供应商

In a transition from tier-2 to tier-1 supplier Target PriceHK$1.50(Previous TPHK$1.50)Up/Downside92.3%CurrentPriceHK$0.78 Maintain BUY.We are of the view thatEVA Holdings(EVA)’stransformationfrom a tier-2 parts supplier to a tier-1 playerlays a foundation for the growth inthe next few years, based on our recent meetings with EVA’s management.Italso appears to us that EVA’s office automation (OA) business could sustain itssolid gross margin in FY24E given its growth in Weihai and recovery in Vietnam. On track to a tier-1 parts supplier with new hot forming business.Weagree with EVA’s management that the revenue growth potential for a tier-2 parts supplier could be limited.Its Mexico business could be an example.Although the plant achieved breakeven in the operating level in 2H23 (thereare still internal transactions and tax to make the situation complicated) asEVA raised prices for Faurecia, Faurecia still accounted formore than 60%of FY23 revenue in Mexico. Such product mix could limit EVA’s margin liftin Mexico, in our view.EVA’s expertise in moulding and itstrack record asa tier-1 supplier for Great Wall Motor (2333 HK/601633 CH, BUY) give usmore confidencein its transformation.EVA has secured orders fromChangan (000625 CH, NR), including Avatr and Deepal. The company isalso in talks with quite a few automakers to improve its Mexico product mixand better utilize its capacity in China. The orders from Changan alsoinclude steel hot forming amid the lightweighting megatrend and safetyconcerns, which could also widen EVA’s margins slightly and increase dollarcontent per vehicle. Ji SHI, CFA(852) 3761 8728shiji@cmbi.com.hk Wenjing DOU, CFA(852) 6939 4751douwenjing@cmbi.com.hk We project 15%CAGR for auto parts’revenue growth in FY24-25E.Management targets auto parts’ revenue to be HK$2.2bn in FY24E, which,in our view, is achievable.The growth should mainly come from its Wuhanand Mexico plants. Revenue from Great Wall (mainly from EVA’s Wuhanand Chongqing plants) rose by 35% YoY in FY23 to about HK$350mn amidsolid sales growth for Tank and P-series.We expect Tank’s sales volumegrowth to continue in FY24E, which could benefit EVA. We project revenuein EVA’s Mexico plant to rise by only HK$100mn, much slower thanpreviously planned, as the company has given up low-margin products fromFaurecia, especially as it aims to transform itself into a tier-1 player. Changan could be the revenue driver for EVA in FY25Eand we projectEVA’s auto parts’ revenue to rise by 15% YoY to HK$2.5bn in FY25E.Stellantis (STLA US, NR) could also start to contribute revenue to its Mexicoplant in FY25E. Source: FactSet Related Reports: “EVA Holdings (838 HK)–Better 2H23 andFY24 as Mexico to turn profitable”–11Sep2023 GPM lift in 2H23 likely to continue in FY24E.Auto parts’ GPM in 2H23 widenedby 2pptsHoHto about 21.5%, as margins for Faurecia and Great Wall improved.Both factors will continue in FY24Eand therefore, we project auto parts’ GPM inFY24E to be 21.8%, as production capacityis to rise and capex is to decline.Weexpect capexof auto parts businessto be no more than HK$150mn in FY24E, lowerthan HK$173mn in FY23.We also expect auto parts’ GPM to remain at such level inFY25E, as more revenuemaycome from automakers directly. OAprofit to remain stable in FY24-25E.EVA’s OA revenue fell HK$207mn YoY inFY23, largely due to the drop of HK$180mn in its Vietnamplant.High inventory andthe internal issues at Fujifilm were the main reasons, which should fade away inFY24E. We expect revenue in the Vietnam plant in FY24E to rise HK$100mn toabout HK$950mn in FY24E. Revenue in its Weihai plant almost doubledYoYtoHK$10mn in FY23E. ThePhase IIof Weihai plantis to start production in Jun 2024.Management expects revenue in the Weihai plant to rise HK$200mnYoYin FY24E.On the other hand, we project OA revenue to decline in EVA’s Suzhou andShenzhen plants. Weproject the overall OA revenue to only rise 2% YoY (aboutHK$100mn) to HK$4.4bn in FY24E. We have become conservative as FY23 OArevenue missed our prior expectation. EVA’s OAGPM widened by about 2ppts YoY in FY23 despite revenue decline,thanks to higherself-made parts ratio in its assembly business, as some JapaneseOA parts suppliers exited China. We estimate OA’s net profit to be about HK$210mnin FY23, or 90% of EVA’s total net profit. We project OA’s net profit in FY24-25E tobe HK$210-220mn. 1H24 earnings outlook.We project EVA’s net profit in 1H24E torise 15% YoY toHK$141mn, assuming 5% YoY growth in revenue and a gross margin of 20.7%.Weestimate FY24E net profit to rise 20% YoY to HK$285mn, or 4% lower than our priorforecast. We also projectFY25-26E net profit to rise 10% YoY and 9% YoY,respectively. Valuation/Key risks.We maintain our BUY rating and target price of HK$1.50,based on the sum-of-the-parts (SOTP) valuation(details in Figure 6). We valueHK$0.50 (previously HK$0.55) per share for its auto components business, basedon 13x (previously 11x) our revised FY24EP/E, as we belie