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Xinchen China Power Holdings Limited (HKG:1148), a HK$961.7m small-cap, operates in the auto industry which is a major player in the economy due to its high commodity consumption. A challenge facing the sector is navigating the path to driverless cars, requiring high capital outlays in technology. Automobile analysts are forecasting for the entire industry, a positive double-digit growth of 22.5% in the upcoming year , and a massive growth of 91.3% over the next couple of years. This rate is larger than the growth rate of the Hong Kong Today, I will analyse the industry outlook, and also determine whether Xinchen China Power Holdings is a laggard or leader relative to its automobile sector peers.
View our latest analysis for Xinchen China Power Holdings
What’s the catalyst for Xinchen China Power Holdings’s sector growth?
The increasing presence of tech firms in the auto industry cannot be discounted by OEMs. Over the past year, the industry saw growth in the teens, though still underperforming the wider Hong Kong stock market. Xinchen China Power Holdings lags the pack with its negative growth rate of -11.0% over the past year, which indicates the company has been growing at a slower pace than its automobile peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 68.5% in the upcoming year. This future growth may make Xinchen China Power Holdings a more expensive stock relative to its peers.
Is Xinchen China Power Holdings and the sector relatively cheap?
Automobile companies are typically trading at a PE of 12.59x, in-line with the Hong Kong stock market PE of 11.6x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a higher 12.3% compared to the market’s 9.5%, potentially illustrative of a turnaround. On the stock-level, Xinchen China Power Holdings is trading at a lower PE ratio of 7.36x, making it cheaper than the average automobile stock. In terms of returns, Xinchen China Power Holdings generated 3.8% in the past year, which is 8.5% below the automobile sector.
Next Steps:
Xinchen China Power Holdings’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. In addition to this, its PE is below its automobile peers, suggesting it is also trading at a relatively cheaper price. Perhaps the market hasn’t fully accounted for the growth, meaning now may be the right time to accumulate more of, or enter into, the stock. However, before you make a decision on the stock, I suggest you look at Xinchen China Power Holdings’s fundamentals in order to build a holistic investment thesis.