CITIC Securities: CIMC Vehicles (01839) GEM IPO is about to increase target price to HK$10.09

CITIC Securities released a research report stating that the announcement of CIMC Vehicles (01839) will be published on the Growth Enterprise Market in the near future.For the IPO, preliminary inquiry will be conducted on June 23, and online and offline subscriptions will be conducted on June 29. After A+H is listed, the company will automatically be included in Southbound Stock Connect, and the liquidity and trading volume of the company’s stock may increase significantly, which is expected to usher in a valuation restoration. The company is the world’s leading semi-trailer and top-fitting business, with significant advantages in scale, technology and industrial layout, and its market share is expected to further increase. Give a target price of HK$10.09 and maintain a “Buy” rating.

01 The company’s listing on the GEM is expected to recover the valuation of Hong Kong stocks

The company announced that it plans to IPO on the Growth Enterprise Market in the near future. It plans to make a preliminary inquiry on June 23 and will conduct online and offline subscriptions on June 29. The company is expected to become a listed company in A+H. At present, the company’s Hong Kong stocks have relatively small circulation and relatively low trading liquidity, so the company’s valuation has been suppressed to a certain extent. After the company returns to the A-share listing, it will automatically be included in Southbound Stock Connect, trading liquidity is expected to improve significantly, and valuation may usher in a restoration.

02 The company is the world’s leading semi-trailer and special vehicle topping leader

The company’s main business is semi-trailer and special-purpose vehicle topping, and it is the global leader in this field. In 2020, the company sold 131,000 semi-trailers, ranking first in the world for eight consecutive years. With reference to developed economies such as Europe and the United States, the gradual application of my country’s drop-and-hook transportation model is expected to drive demand for semi-trailers in the long-term. The penetration rate of specialized transport vehicles such as refrigerated semi-trailers, refrigerated compartments, and van semi-trailers also has great potential to increase. Under the influence of policies such as the implementation of the new national standard for trailers, stricter overload management, and axle charging, the industry’s competitive landscape is expected to be significantly optimized. As the industry leader, the company’s product unit price and market share are expected to further increase.

03 Scale + Technology + Layout Build the core competitiveness of the enterprise

In terms of scale, the company is the world’s largest semi-trailer manufacturer, backed by CIMC for centralized procurement, and the scale effect is significant. The advanced “lighthouse factory” can significantly improve product quality and reduce production costs.

Technically, the company has accumulated deep technology, participated in the formulation of national standards, can quickly adapt to the requirements of regulatory changes and industry technology upgrades, and has strong product iteration capabilities.

In terms of layout, the company deeply binds key customers, establishes a joint venture with Shaanxi Heavy Duty Automobile, and establishes a development base with FAW Jiefang, and cooperates with SAIC Hongyan to establish the “Hongyan Ruijiang” brand. The company has successful global investment experience and a wide range of overseas operations. It is expected to replicate its successful path in the United States in Europe and other regions.

04 The company’s overseas business is expected to recover quickly, benefiting from the economic recovery in Europe and America

As the United States and the European Union are gradually weakened by the impact of the epidemic, the company’s overseas business is expected to gradually recover. At the same time, both the EU and the US have passed large-scale economic stimulus plans. The EU’s long-term budget from 2021 to 2027 will reach 1.1 trillion euros. The US has passed a US$1.9 trillion economic stimulus plan, and further infrastructure stimulus investment may follow. Large-scale economic stimulus is expected to significantly stimulate various production and consumer demand, and drive the recovery of the European and American heavy truck and semi-trailer markets. It is expected that in 2021, the company’s North American/European plants are expected to gradually recover from the impact of the epidemic, further benefiting from the recovery of overseas economies.

Investment Advice

With the implementation of new regulations to optimize product structure, product unit price increase, and profitability enhancement, the company’s semi-trailer and bodywork business is expected to achieve further development. The company has a well-established layout in the European and American markets and is expected to significantly benefit from the recovery of overseas economies. The company is the global leader in semi-trailer and bodywork business, with significant advantages in scale, technology and industrial layout, and its market share is expected to further increase. Fine-tune the company’s EPS forecast for 2021/2022 to 0.76/0.83 yuan, and it is estimated that the company’s EPS in 2023 will be 0.98 yuan. The current stock price corresponds to 8.8/8.1/6.8 times PE in 2021/22/23. The company will return to the A-share listing soon, and the current Hong Kong stocks are expected to usher in a valuation restoration, corresponding to the target price of HK$10.09, and the “buy” rating is maintained.