Trump's increase in auto tariffs leads to a 30% surge in this automotive Hong Kong stock

Some automotive parts stocks surged, with MINTH GROUP rising by 30% and JOHNSON ELEC H increasing by 13%.

Previously, the U.S. tariff increases and the internal competition within the automotive industry led to lower valuations for Hong Kong-listed automotive parts stocks. With the revaluation of technology stocks, well-performing automotive parts stocks may see a revaluation.

Goldman Sachs: The market has digested the negative impact of tariffs

After the tariff news was announced in early February, the H-share stock prices of the automotive parts companies we cover fluctuated relatively little. We believe this is mainly due to the fact that the tariff increases on Chinese goods by the U.S. were lower than the market's general expectations, and the market anticipates that the tariffs on Mexico and Canada may only be a short-term measure.

It should also be noted that based on our recent communications with the management of relevant companies, they expect that the OEM customers will bear most of the potential tariff costs. Our case study on Fuyao Glass during the tariff increases in 2018 shows that Fuyao Glass was able to pass on more than 50% of the tariff costs to downstream customers.

CICC: Stock price has 39% upside potential

CICC stated that reviewing the operational performance of MINTH GROUP in 1H24, the revenue from international and domestic markets was 6.56 billion and 4.53 billion yuan, respectively, with year-on-year growth of +18.6% and +7.5% (after adjustment), and the revenue growth rates in both domestic and international markets outperformed the corresponding regional industry sales growth rates.

Since 2H24, the Trump administration's tariff increases on Chinese imported parts have raised market concerns. The company has local factories in the U.S., and we estimate that the localization production ratio of the company's U.S. business has reached 70%. Based on the revenue budget for 2025, the potential tariff revenue exposure is less than 4%; referring to the automotive parts supply chain practices, the incremental tariff costs are expected to be transferred.

From a medium-term perspective, the company's revenue from metal and trim businesses may remain stable, with aluminum parts, plastic parts, and battery box businesses expected to achieve double-digit annualized growth, coupled with contributions from new business increments. We believe that in the next 3-5 years, the company is likely to maintain an annualized revenue growth rate of 20%, and profit scale is expected to grow accordingly.

CICC maintains its profit forecasts for 2024/2025 and introduces a profit forecast of 3.2 billion yuan for 2026 for the first time. It maintains an outperform rating for the industry, with the current stock price corresponding to 6.5x/5.5x 25E/26E P/E. The increase in the valuation center of Hong Kong stocks and the improvement of the company's aforementioned risk margins will drive the company's valuation rebound. We raise the target price by 41% to HKD 22.5, corresponding to 9x/8x 25E/26E P/E, which has a 39% upside potential compared to the current stock price.

Risk factors: Intensified decline in domestic joint venture business; new business expansion not meeting expectations