Maintain BUY. Minth’s 1H24 net profit was in line with our forecast, coupled with strong free cash flow to cut its net debt level. The company plans to buy back shares and resume dividend distribution for FY24. That could make its dividend yield attractive given its current low valuation. Moreover, Minth’s earnings visibility becomes even better with its capex cuts and new business expansion, in our view.
1H24 earnings in line with improving operational efficiency. Minth’s 1H24 revenue was 1% lower than our prior forecast while its gross margin of 28.5% beat our estimates by 1.2ppts. The beat at the gross profit level was offset by higher selling expenses than expected. That resulted in a net profit of RMB1.1bn in 1H24, or 0.2% lower than our prior forecast. Moreover, Minth’s net debt level fell RMB0.9mn HoH to RMB3.3bn as of Jun 2024, reflecting its strong operating cash flow and self-disciplined capex.
　　Dividends, capex and new businesses as key topics. Management is optimistic about achieving 20% YoY growth in net profit in 2H24, which probably gives management confidence in resuming dividend distribution for FY24 even with a share buyback plan. Should the company maintain its previous 40% payout ratio, the current dividend yield would be 7.8%. The company cut its FY24 capex guidance from RMB2.5-3.5bn to below RMB2.5bn, as it has been better utilizing its existing production lines, which gives us more confident about its earnings growth in the medium term, especially for the battery housing business. The company has also been accelerating new businesses by leveraging current resources, such as sub- frame, door sealing system and integrated intelligent exteriors. All these factors look positive to us.
　　Earnings/Valuation. We revise up our FY24E net profit estimates by 3% to RMB2.3bn, as we raise gross margin assumption by 0.8ppts following its 1H24 beat. We also raise our FY25-26E net profit estimates by 4% and 3%, respectively, largely due to better margin outlook. We maintain our BUY rating and target price of HK$21.00, which is still based on 10x our revised FY24E EPS. Key risks to our rating and target price include lower revenue/margins, higher risks in overseas operation than we expect, as well as a sector de- rating.