China Yuchai International Limited
CYD Details
China Yuchai International Limited (NYSE: CYD) is engaged in the manufacture, assembly, and sale of a wide variety of engines for trucks, buses, passenger vehicles, construction equipment, marine and agriculture applications in China. It also produces diesel power generators, and offers maintenance and retrofitting services. CYS distributes its engines directly to auto Original Equipment Manufacturers (OEMs) and retailers. The company operates via its subsidiary, Guangxi Yuchai Machinery Company Limited (GYMCL). As of June 07, 2021, the company’s market capitalization stood at USD 646.79 million.
Strategic Partnership for EV Development: On June 02, 2021, the company formed a strategic partnership with Guangxi Shenlong Automobile Manufacturing (Sunlong), according to which the companies will develop new Electric Vehicles (EVs) based on CYD's four new energy powertrain systems. The companies also plan to leverage their supply chains and distribution networks to capture the Southeast Asian markets.
FY20 Results: The company reported an uptick of 14.24% in total revenue to RMB 20.58 billion in FY20 (ending December 31, 2020) compared to RMB 18.02 billion in FY19. CYD sold 430,320 units of engines in FY20, 14.40% higher than 376,148 units sold in FY19. Net income for FY20 was RMB 779.33 million, as compared to RMB 860.70 million reported in FY19.
CYD Unit Sales (Source: Investor Presentation, March 2021)
Key Risks: In FY20, the company generated 46.6% of its total revenue from its top 5 customers and 29.2% from the Dongfeng Group. Hence, the loss of even one of these customers could adversely affect CYD’s financial condition. Further, prolonged frictions between the US and China, and the recent passage of a bill in the US that could lead to the delisting of some Chinese companies from the country’s exchanges (in case the US authorities are unable to satisfactorily audit the company for three consecutive years) expose the stock to significant political and regulatory risks. Though a solution to the standoff could be negotiated in the medium term (before the earliest possible delistings begin in 2024), the companies that might not be able to fulfill the revised standards are at risk.
Valuation Methodology: Price/Earnings Multiple Based Relative Valuation
(Data Source: REFINITIV, Analysis by Kalkine Group)
CYD Daily Technical Chart (Source: REFINITIV)
Stock Recommendation: CYD has declined by 4.92% in the past 3 months and is currently close to the mid-point of the 52-week range of USD 13.01 to USD 20.49. The stock is currently trading close to its 200 DMA level. On the technical chart, the next support level is USD 13.85. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 18.62. Considering the correction in the stock price in the past 3 months, decent financials, significant growth potential, and associated risks, we recommend a “Speculative Buy” rating on the stock at the closing price of USD 15.83, up by 0.51% as of June 07, 2021.
* The reference data in this report has been partly sourced from REFINITIV.
Leju Holdings Limited
LEJU Details
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