In 2024, Minth’s total revenue rose by 12.8% YoY to RMB23.1bn, below original revenue growth guidance of 20%, primarily explained by the demand weakness in China market for which the regional revenue edged up 1.3% YoY with the demand collapse for major JV brand customers, despite a surge in overseas revenue (+22.1% YoY). By business unit, the revenue from battery housing surged 50.9% YoY, while that generated from other legacy segments moderately increased by 4.8% YoY. The gross margin well expanded by 1.5ppts YoY to 28.9% in 2024, helped by stringent cost disciplines through bulk-purchase measures and high utilisation rate for battery housing products, which more than offset the drags from initial production ramp up for aluminum products in Mexico/Serbia. Its current valuation (9x 2025E P/E) seems undemanding given its solid earnings growth and resumption of dividend payout alongside the improving cash flow. Maintain BUY with higher TP of HK$24.00, based on 10x 2025E P/E.
Key Factors for Rating
Weaker-than-anticipated revenue growth on the demand collapse for major JV brand customers in China market. In 2024, total revenue rose by 12.8% YoY to RMB23.1bn, falling short of original sales growth guidance of 20%, primarily explained by the demand collapse for major JV brand customers (mainly Japanese brands) in China despite a surge in overseas revenue. Driven by the consistent production ramp-up in Europe & North America, the overseas revenue soared 22.1% YoY to RMB13.8bn. By business unit, the revenue from battery housing surged 50.9% YoY to RMB5.3bn, while the revenue generated from the legacy segments moderately increased by 4.8% YoY to RMB17.8bn.
Gross margin improvement beat expectations driven by stringent cost disciplines and improving utilisation for battery housing products. In 2024, GPM well expanded by 1.5ppts YoY to 28.9%, with the 2H24 GPM of 29.3% seeing faster improvement vs. 28.5% in 1H24, mostly benefiting from the stringent cost disciplines via bulk-purchase measures and higher utilisation rate for battery housing products. By product, the GPM of battery housing maintained steady expansion at 21.4% in 2024 (+2.1ppts YoY) supported by continuing production ramp up, whereas that of aluminum products fell 4.2ppts to 33.3% from prior year dented by initial launches of new projects in Mexico and Serbia. Going forward, the management targeted gross margin of 25% for battery housing business over the mid-to-long run, with dedicated efforts to leverage utilisation rate and enhance the refined cost control for overseas operations.
Strong free cash flow dynamics helped by record-high net income and a significant decrease in CAPEX. Thanks to the stronger GPM and well- controlled OPEX input, the OPM edged up by 1.4ppts from prior year to 11.1% in 2024. The net income advanced 21.9% YoY to RMB2.3bn, hitting a record high. Coupled with a significant decrease in CAPEX of RMB1.9bn (down from RMB3.2bn in 2023), the free cash flow rallied to RMB1.4bn in 2024 from RMB131m in 2023. Despite several new projects to carry out, the mgmt. guided overall CAPEX to stabilise at c.RMB2.0bn at the results briefing.
Ambitious pursuit for second growth curve with strategical deployment in humanoid robots and eVTOL applications. The company has strived to develop the second growth curve by actively exploring new sectors and products, as well as continuously invested in the R&D of innovative products and new material technologies including battery housings, body and chassis structural parts, intelligent integrated exterior parts, bio-robotics and eVTOL. In the humanoid robot field, the company focuses on the R&D of integrated joint designs, motor drive technology, intelligent electronic skin and intelligent panels for robots, wireless charging system for robots and limb structural parts. The Group has established strong partnerships with multiple robotics customers (i.e. Zhiyuan Robot) for concurrent design of solutions and completed small batch delivery of samples. For eVTOL applications, Minth has partnered with multiple leading Chinese players of flying vehicle/eVTOL (electric Vertical Take- off and Landing) to design and develop specific products, aiming to become industry-leading integrated system makers to supply auxiliary materials, rotor, and airframe over 2027-28.
Exposure to potential US tariff hike under control. In 2024, Minth’s revenue generated from America market accounted for 24.4% in total turnover, 70% of which came from localised manufacturing with no exposure to any US tariffs. In specific, export from China to the US only accounted for 3.5% of total revenue, while export from Mexico to the US only made up 5.9% of total revenue. According to the company, less than 4% of projected revenue in 2025 will be subject to potential tariff hike, while these extra tariffs will highly likely borne by customers, if taken into effect.
Valuation
Overall speaking, the new business deployment may bring new growth driver for Minth over the mid-to long run. But on the other hand, these new deployments, either components for humanoid robots or eVTOL core parts, may entail addition investments with limited positive contributions to the near-term financials. For 2025, management guided that domestic revenue growth would pick up slightly from that of last year, while overseas revenue may slow mildly to 15-20% YoY from 22.1% in 2024. By product BU, battery housing remains the primary driver with YoY revenue growth of 30-40%, while combined revenue of legacy BUs of aluminum/plastics/metal&trim is expected to grow at single digit.
We trim our revenue forecasts for 2025-26 by 6-7% to RMB26.2bn/29.8bn, respectively, given lower revenue from legacy BUs and sharply decreased revenue from JV brands in China. Yet, to reflect better-than-expected gross margin, especially battery-housing BU, we raise our 2025-26 net profit forecasts by 2-4% to RMB 2.6bn/2.9bn, respectively.
Currently, its shares are trading at 9x 2025E P/E, which seems undemanding for solid earnings growth and resumption of dividend payout. Maintain BUY with higher TP of HK$24.00, based on 10x 2025E P/E.