Keboda Technology: More headwinds emerging; reiterate Sell

Research evidence excerpt

Keboda Technology: More headwinds emerging; reiterate Sell

Forecast returns

Forecast price appreciation -22.5%

Forecast dividend yield 1.4%

Forecast stock return -21.0%

Market return assumption 6.8%

Forecast excess return -27.8%

Company Description

Keboda Technology is a domestic auto parts supplier principally engaged in the research,

development, manufacturing and sales of automotive electronics and related products. Its

main products include lighting control systems, motor control systems, energy management

systems, automotive electronics and electrics, and other automotive parts. The company

distributes its products to both auto lighting companies and automobile manufacturers, such

as FAW-VW, Hella, Valeo and Huayu Vision. The company conducts businesses in the

domestic market and overseas markets.

Valuation Method and Risk Statement

We value Keboda Technology using a DCF methodology.

Key stock-specific risks we identify include: 1) slower-than-expected development of the

company's new products; 2) client development lagging expectations; 3) clients cancelling or

postponing orders; 4) quality issues triggering product recalls; and 5) a highly concentrated

client base.

Key sector risks we identify: 1) auto production declining more than we expect; 2)

automakers exerting strong downward pressure on parts supplier prices; 3) overseas

competitors bringing on more capacity in China, leading to intense price competition; 4)

labour or raw material costs increasing; and 5) National VI emission standards rolling out

slower than expected.

Key macro and regional risks facing the company, in our view, include: 1) passenger car sales

volume dropping amid an economic slowdown; and 2) an adverse impact should trade

tensions lead to higher import/export tariffs on auto parts.