Market concerns about weakening overall demand due to the gloomy outlook brings near-term correction, while Haitian stands out and outperforms the peers on the back of its global expansion. The global demand will recover following the kick-off of US$ interest rate cut cycle, while companies with highest overseas exposure would be the winner. We expect Haitian’s export contribution will rise from the current over 30% level to 40% in the medium term and eventually 50% in the long term, helping to offset the domestic uncertainties. We retain Haitian as the key recommendation in industrial sector.
Key Factors for Rating
Haitian’s key competitiveness lies in its promising balanced geography mix while most of the industrial peers still rely on one single market. Haitian will deliver a much better sales trend than peers if there will be uncertainty in the domestic market. Haitian clearly plans for five global manufacturing centres, respectively in Serbia, India, Mexico, Japan, and Malaysia.
In Serbia, the construction of the new plant started in last April and will commence in 2025, which will be the largest overseas manufacturing centre for Haitian. In India, the second plant in Chennai is under construction and would likely put into operation by 2024, which will cooperate with the first plant in Gujarat. In Japan, the second factory is under construction that would help lift the manufacturing capacity in East Asia. The planned new plant in Malaysia will cover the markets in Southeast Asia.
Besides the five global manufacturing centers, two service centres are planned in Turkey and Indonesia to offer show room, application service, before sale and after sale service. These two service centres help cover the clients in Europe and in Southeast Asia.
The global demand will increase once the US$ enters the interest rate cut cycle. We forecast the overseas sales portion will increase from the current 30% to 50% in the long term, which is the core competitiveness for Haitian.
Key Risks for Rating
Uncertainties in the domestic market.
Valuation
Haitian stands out the industrial peers despite the uncertainty in domestic market. Overseas leg would help Haitian diversify the geography mix while most of the peers will suffer from the single market risk. We retain earnings estimate unchanged, and retain BUY rating.