Morgan Stanley - Minth Group (0425 HK) Field Trip Takeaways Management reitera… · @2030FY_X · TwKit

@2030FY_X

Morgan Stanley - Minth Group (0425 HK) Field Trip Takeaways Management reiterated its full-year 2026 guidance during this field trip: both revenue and earnings are to maintain double-digit YoY growth. Against the baseline of 9% YoY revenue growth and 12% YoY earnings growth achieved in H1, the H2 acceleration is deliverable. Free cash flow guidance is maintained at RMB 1 billion, while H1 only recorded RMB 28 million, meaning there is pressure to deliver approximately RMB 972 million in H2 to turn free cash flow positive; the market has not yet fully priced this in. We judge that the QoQ decline in Q3 aluminum prices has substantively alleviated gross margin compression, and the visibility of marginal improvement in H2 earnings quality is rising. The current share price implies a 2026E P/E of only 7x (Morgan Stanley model estimates). Coupled with double-digit earnings growth and the option value of two second curves—AI infrastructure and humanoid robot components—the risk-reward profile is highly attractive. Rating maintained at Overweight with a price target of HK$51, implying approximately 128% upside from the October 16, 2026 closing price of HK$22.38. 1. Battery Housing Business: European BEV Volume Ramp-up Plus Tightening Domestic Regulations, Smooth Market Share Expansion Logic • European demand pull is clear: Under the European Automobile Manufacturers' Association (ACEA) metrics, EU BEV sales surged 45% YoY in the first eight months of 2026. The EU market contributes about 70% of Minth's battery housing revenue, and the terminal installation slope maps directly to the company's shipment momentum. • Domestic regulatory dividend: Domestic battery safety standards will tighten starting in July 2026. Small and medium-sized battery housing suppliers will be passively phased out due to shortcomings in validation capabilities and production line consistency. For Minth, as a Tier 1 supplier that has passed stringent OEM certifications, market share expansion is mandatory rather than optional. • Comprehensive judgment: As the fundamental base, battery housing revenue momentum will not weaken in H2 2026, but will instead enter an acceleration phase driven by the resonance of both the European and Chinese markets. 2. Second Curve Divergence: AI Infrastructure Faster Than Expected, Humanoid Robots Slower Than Expected • AI infrastructure beats expectations: With shipments to Cooler Master already underway, the Morgan Stanley model shows that AI infrastructure-related revenue will surpass the humanoid robot-related business in 2027. This crossover point is earlier than previous market expectations. This business enjoys a higher valuation premium narrative, forming a key option for valuation re-rating. • Humanoid robot pace delayed: The order ramp-up from humanoid clients is slower than originally assumed, contributing almost nothing to apparent revenue in the short term. However, this does not change the mid-to-long-term potential space for joint structural parts and lightweight housings. The market's previous over-discounting of the humanoid theme actually provides an expectations gap. 3. Valuation Framework and Quantitative Anchors • Base valuation uses a DCF framework: WACC assumption of 13% (cost of equity 15.3%, cost of debt 6.3%), mid-term growth rate of 9%, and terminal growth rate of 3%. • Model core forecasts: 2026-2028E EPS are RMB 2.60, RMB 3.38, and RMB 3.96, respectively; expected revenue increases from RMB 25.737 billion in 2025 to RMB 37.825 billion in 2028; ROE steps up from 12.8% in 2026 to 16.4% in 2028; dividend yield rises from 4.8% in 2026 to 7.3% in 2028, and FCF yield returns to 8.6% in 2028. • Current 2026E P/E is 7.3x, P/B is 0.9x, and EV/EBITDA is 4.9x, all at the lower end of historical valuation bands, having fully priced in concerns over an auto sales downturn. 4. Bull/Bear Debates and Scenario Risks • Upside scenario triggers: Aluminum battery housings win better-than-expected new projects/new clients, overseas market expansion is faster than expected, and humanoid project design wins materialize. • Downside scenario constraints: Long-term demand in the domestic passenger vehicle market (especially PHEVs) weakens, overseas market sales recovery is sluggish, and rigid upward labor costs erode profit margins. • Industry view level: Morgan Stanley maintains an In-Line rating on the China Autos & Shared Mobility sector overall, with Minth being one of the few relative return targets within the sector. 5. Trading and Allocation Implications The market's core anxiety right now is whether an auto sales downturn will transmit to apparent component orders, but we believe this concern has been fully absorbed by the valuation. Superimposing four factors—a 7x forward P/E, double-digit earnings growth, RMB 1 billion level free cash flow, and an unpriced AI infrastructure option—downside protection is sufficient at current levels. Strategically, we recommend Minth as a core relative return holding in the HK auto parts sector, with short-term volatility providing windows to add positions. Key tracking nodes are Q4 battery housing new design win disclosures, the monthly realization of Cooler Master chain shipments, and the reverse verification of gross margins by aluminum price trends.

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