As the trade war has slightly dissipated, Hong Kong stocks have rebounded recently, and some sectors have national policy support. For example, the auto industry will speed up opening up and bring new enthusiasm. The business of joint-use products such as parts and components will also benefit. .
The auto parts business of Huazhong Automotive (06830.HK) is principally engaged in the production and sale of interior and exterior decorative and structural automotive parts, moulds and tools, air conditioning or heater housings and reservoirs and other non-automotive products. In the 2017 fiscal year, the Group recorded revenue of 1.76 billion yuan (RMB, the same below), an increase of 1.3% year-on-year; gross profit margin of 29.2%, an increase of 1.7 percentage points. Profit attributable to shareholders was 138 million yuan, an increase of 31.7%. Basic earnings per share was 7.81 points, and a final dividend of 0.4810 points per share was declared, plus a dividend of approximately 0.3 cents per share in the interim period, totaling a dividend of approximately 0.7810 points for the full year.
Structure and decorative parts are the Group's main business, with revenue of 1.345 billion yuan during the period, accounting for 76.4% of total revenue. Due to the Group's continuous focus on high value-added product orders and the “automated factory†strategy, the gross profit margin increased from 30.6% to 33.1%. As for non-automotive products, gross profit margin increased from 22.6% to approximately 31.9%, mainly due to the increase in profit due to changes in product mix.
In addition to saving its own costs, the Group also takes into account the customer's feelings during product development. It implements the strategy of plastic-generation steel to reduce the weight of the vehicle body, thereby reducing the consumption of automobile fuel and saving costs for customers. Plastic-to-steel products can achieve the same hardness and driving safety standards as steel, while reducing the weight of the product to 1/4-1/8 of the original weight, and achieving 100% recycling, so gradually replace traditional steel as the body The main raw materials for parts.
The Group has invested 30 million yuan to independently develop a fully automatic production line of “plastic-made steel†bottom plate products. The new products have fully entered the existing middle and high-end groups of Huazhong and began to be applied in large-scale applications among local brand car companies. . The production line has received orders from FAW-Volkswagen, Shanghai Volkswagen, SAIC-GM and BAIC Yinxiang. The Group's fist product of plastic-made steel is the front-end framework, and has become the first front-end framework of Geely Automobile (00175.HK), Beiqi Yinxiang, Daimler-BYD, Zhongtai Automobile, Guangzhou Automobile Chuanqi and so on. The steel supplier, from the product data modeling, CAE analysis and testing, was independently developed by Huazhong. In terms of joint venture brand vehicles, the Group is a supplier of plastics and steel for the front-end frame of Shanghai Volkswagen, FAW-Volkswagen/Audi, Changan Ford, etc., mainly for supporting customers.
In addition, the group partnered with foreign-funded enterprises to invest 150 million yuan to build a special production line for the country's first domestically produced sunshade fabric. The customer is the skylight assembly manufacturer of the first-line automobile OEMs at home and abroad. The terminal customers include BMW, Mercedes-Benz, Audi, FAW-Volkswagen, Shanghai Volkswagen, Shanghai GM and so on. Compared with the original products, the profit margin of new products is expected to reach more than 30%. The joint venture is the original supplier of the global brands such as Mercedes-Benz and Audi. It has technical monopoly and market priority in the industry, which is expected to help enhance the competitiveness of the Group.
The Group's current price-to-earnings ratio is nearly 14 times, and its endogenous growth momentum is strong. There is still room for valuation improvement. If the valuation is 17 times P/E, the target price of the group can reach about 1.6 yuan, which is worth noting.
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