敏实集团(00425) 　　Minth hosted an investor call this evening at which management elaborated on two strategic topics: (1) its approval byMIIT today to enter the electric vehicle (EV) business; and (2) the latest developments at its Mexican operation followingthe U.S. Presidential election. On balance, we left the call believing it is still early to price or factor the EV business intothe share price or earnings forecasts. As for the Mexican operation, we believe the stock’s recent weakness due to fears orpolicy uncertainty was potentially overdone. We maintain our OW rating and Jun-17 PT of HK$29. We highlight keytakeaways from the call below:Minth’s EV endeavor・ Background: Min-An Auto (unlisted), a 50-50 JV between Minth and Hui-an municipal government in Jiangsuprovince, was established in 2011, focusing on EV R&D and manufacturing business. Min-An’s EV project wasapproved by China’s MIIT and NDRC today; the company is expected to build a plant in the next two years beforeapplying for a manufacturing license again from MIIT. 　　Financial implications: Minth indicated that the company has expensed all EV-related R&D expenses andincorporated the cost into its P&L in the past. A limited amount of registered capital at Min-An (US$33mn) won’t posemuch drag on Minth’s bottom line at this stage, although the company needs to discuss with its JV partner the futurecapex required to expand the EV business. For now, management believes its capex and SG&A guidance, as well as itsdividend policy (40% payout), remain intact. 　　Business model: Minth management emphasized that the company will aim to grab the fast-growing EV opportunity,while at the same time minimizing potential financial risk by finding/adding a third-party strategic investor for the JV inthe future, given the very different model in the OEM business.Mexico operation and China exports 　　Mexico operation: Revenue from Mexico is only ~3% of total sales, or Rmb300mn last year, and most of theproducts produced in Mexico are for local customers such as Nissan, Ford and Audi. Exports from Mexico to the U.S.totaled only ~Rmb30mn (<1% of total) in 1H16. About 40-45% of Mexico’s auto production is for Mexico domesticconsumption or exports outside the U.S. that won’t be directly affected by NAFTA. 　　China exports to the U.S. represent about 10% of Minth’s global revenue. Minth expects to export ~US$150mn ofsemi-finished products and US$100mn of finished products from China to the U.S. this year. The cost of import tariffsis shared between Minth and customers, and Minth could renegotiate pricing with customers if there is a substantialincrease in tariffs. 　　Strategy to mitigate potential policy headwind: The company has shifted some China export production to Thailandsince last year. Thailand can be a backup for Minth if China exports to the U.S. become unfavorable. Minth will havesufficient time to follow the OEMs if there are any changes to NAFTA that would lead to OEMs having to move fromMexico to the U.S.Recommendation 　　We remain OW on Minth, and our Jun-17 PT of HK$29 is based on a 13x forward P/E. Risks include lower-thanexpected sales from China or overseas markets.Investment ThesisWe believe Minth’s margin will start to expand in 2016 despite six consecutive years of contraction, thanks to: (1) product miximprovement, in particular, high-margin/ASP aluminum business; (2) a turnaround at overseas plants, in particular, in the U.S.; (3)new order wins to assist customer diversification toward premium European brands; (4) CNY depreciation, given Minth’s highoverseas exposure ratio of 40%; (5) expansion into ADAS (advanced driver assistance system) business through a 60-40 JV withFujitsu in China and the acquisition of a camera module supplier in Taiwan �C a long-term positive despite a limited revenuecontribution in initial stages.ValuationOur Jun-17 PT of HK$29 is based on a 13x forward P/E. We maintain our long-term bullish stance on the stock and believe it deservesa 13x valuation multiple, given its solid earnings momentum, revenue visibility and strategic move into ADAS and EV business,which could lead to a re-rating.Risks to Rating and Price TargetKey downside risks to our PT include weaker-than-expected passenger vehicle sales and a price war in China’s passenger vehiclesector, forcing OEMs to cut their purchase price of auto parts.