Morgan Stanley reiterates Overweight on Minth Group, believing the recent pullback provides an attractive entry point

Overview

This is a company research report by Morgan Stanley on Minth Group Limited, with the core purpose of addressing investor concerns about EU localization requirements, 2026 revenue growth, and gross margin pressure. The report believes Minth's recent share price decline has been excessive, fundamentals remain largely intact, and European EV growth, battery housing business expansion, and medium- to long-term new business options continue to support the Overweight rating and HK$51 target price.

Core views

The core views include: first, the recent share price decline reflects negative beta in the auto sector and profit-taking from thematic trades more than operational deterioration; second, the EU Industrial Accelerator Act has a manageable impact on Minth because final battery housing products come from EU member states such as France, the Czech Republic, and Poland, and the local sourcing ratio of European factories is relatively high; third, about 30% of revenue comes from the battery housing business, supported by strong European EV demand, which is expected to offset concerns about growth in traditional businesses; fourth, rising aluminum prices do pressure margins in the aluminum business, but the body structural business still maintains full-year gross margin guidance of 23%-25%; fifth, earnings CAGR for 2026-2028 is expected to be 19%, and combined with medium- to long-term option value from humanoid robots, AIDC liquid cooling, and eVTOL, the valuation entry point appears attractive.

Analysis framework

The report uses a combination of fundamental tracking, a scenario-based risk-reward framework, and DCF valuation: it first breaks down recent investor concerns, then uses European EV sales, localized supply chains, business revenue mix, aluminum prices, and gross margin guidance to verify operational resilience, and finally provides a target price and risk boundaries through DCF and bull/bear scenarios.

Methodology notes

• Valuation methodsDCF

  Derive the target price based on DCF value under the base case

  The report uses the DCF base case as the basis for the target price, with key assumptions including 13% WACC, 15.3% cost of equity, 6.3% after-tax cost of debt, and a 3% terminal growth rate.

• Scenario analysisRisk Reward

  Bull, base, and bear case valuation scenarios

  The report lays out bull, base, and bear case scenarios with different assumptions for revenue growth, raw material costs, gross margin, and new project progress, in order to assess upside and downside risks to the target price.

• Rating systemMorgan Stanley Stock Ratings

  Overweight means the stock's risk-adjusted total return over the next 12-18 months is expected to outperform the average of the coverage universe

  Morgan Stanley maps Overweight to its most positive stock rating, but it is not equivalent to a traditional buy rating; the rating horizon is typically 12-18 months.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Minth Group Limited (00425.HK)

  The report's covered company and core equity asset

  Strengths

  A global leading supplier of trim and body structural parts, with advantages in quality, cost, and global customer relationships, as well as a healthy balance sheet.

  Weaknesses

  About 70% of revenue still comes from traditional businesses, and investors worry that insufficient growth may weigh on valuation; rising aluminum prices are pressuring margins in the aluminum business.

  Comparison

  Share price fell 25% over the past month, underperforming the Hang Seng Index's 6% decline; the report believes the current roughly 10x 2026 P/E is attractive relative to 19% earnings CAGR.

  Risks

  Further increases in raw material costs, ASP pressure, weaker-than-expected overseas sales, rising labor costs, and geopolitical uncertainty.

• Aluminum battery housing business

  Minth's key growth business, accounting for about 30% of revenue

  Strengths

  European EV sales are stronger than expected, and delivery footprints in France, the Czech Republic, and Poland help meet EU localization requirements.

  Weaknesses

  Intermediate products involve non-EU regions such as Serbia; if rule enforcement or interpretation tightens, it may trigger investor concerns.

  Comparison

  Compared with traditional businesses, the battery housing business benefits more directly from European EV sales growth.

  Risks

  Lower-than-expected new project wins, rising raw material prices, changes in EU localization requirements, or delays in customer certification pace.

• Traditional auto parts business

  Minth's base revenue business

  Strengths

  Trim and body structural parts have scale, quality, and cost advantages, and benefit from relationships with global branded customers.

  Weaknesses

  Growth may be slower than in new businesses, and low-margin projects for Chinese EV customers may offset scale benefits.

  Comparison

  Traditional businesses account for about 70% of revenue and are one source of valuation concern; battery housings and overseas expansion are growth supplements.

  Risks

  ASP pressure, weak macro demand, rising raw materials, and changes in customer mix.

• Humanoid robots, AIDC liquid cooling, and eVTOL

  Sources of medium- to long-term option value

  Strengths

  The report views these new businesses as medium- to long-term growth drivers that can enhance valuation upside potential.

  Weaknesses

  Current contribution and order visibility are limited, and the market may take profits after thematic enthusiasm fades.

  Comparison

  Compared with the core auto parts business, the new businesses are more option-like in nature and have limited short-term earnings contribution.

  Risks

  Project rollout slower than expected, insufficient customer acquisition, and uncertain commercialization timing.

Key data

• Share price performance over the past month-25%The report states that Minth's share price fell 25% over the past month, while the Hang Seng Index fell 6% over the same period.
• Target priceHK$51.00The report reiterates Overweight and gives a HK$51 target price; the valuation section says the target price was raised 2% from HK$50 to HK$51.
• European EV sales growth+31% year-on-year in January-April 2026Covering 16 key European markets, this is viewed in the report as support for growth in the battery housing business.
• Battery housing business revenue shareAbout 30%The report says about 70% of revenue comes from traditional businesses and about 30% from the battery housing business.
• LME aluminum price+28% year to date in 2026The rise in aluminum prices is the main reason investors are concerned about margin pressure.
• Gross margin guidance for body structural business23%-25% in 2026Management maintained full-year guidance; it was 24% in 2025.
• Earnings forecast revision2026 -5%; 2027-2028 +1%-2%The 2026 cut reflects aluminum-driven margin pressure, while the increases in later years reflect stronger Europe revenue.
• 2026-2028 earnings CAGR19%Based on this, the report believes the current roughly 10x 2026 P/E is attractive.
• Key DCF assumptions13% WACC; 15.3% cost of equity; 3% terminal growth rateThe cost of equity is derived from 1.85 beta, 6.5% equity risk premium, and 3.3% risk-free rate.

Impact & implications

In terms of investment implications, the report views the recent pullback as a buying window amplified by sentiment and sector factors, rather than a signal of fundamental damage. If European EV demand continues to exceed expectations, Minth maintains compliance with EU localization requirements, and controls aluminum price pressure, the battery housing and overseas businesses may support revenue growth and valuation recovery; however, if raw material prices continue rising, ASP pressure expands, or overseas expansion falls short of expectations, there is downside risk to gross margins and DCF assumptions.

Risks

• Continued aluminum price increases leading to margin pressure in the aluminum business beyond management expectations.
• Macroeconomic uncertainty and geopolitical tensions causing revenue growth and overseas expansion to fall short of expectations.
• Intensifying ASP pressure offsetting scale benefits and cost savings.
• A higher share of low-margin projects from Chinese EV OEMs dragging on profitability in the body structural business.
• A slowdown in European EV sales growth weakening battery housing business growth.
• Tighter enforcement or interpretation of EU localization rules affecting expectations for Minth's European supply chain compliance.
• Rising labor costs.
• Lower-than-expected project wins in new businesses such as humanoid robots, AIDC liquid cooling, and eVTOL.

What to watch

• Whether EV sales in 16 key European markets continue their high growth.
• Whether Minth's delivery system in France, the Czech Republic, and Poland and its local sourcing ratio in Europe continue to satisfy the EU's more than 70% localization requirement.
• The trend of LME aluminum prices and the company's ability to pass through rising aluminum costs.
• Whether the body structural business delivers on its 2026 gross margin guidance of 23%-25%.
• Progress in winning new battery housing projects and new customers.
• The pace of overseas market expansion, especially in Europe and North America.
• Orders or commercialization progress for humanoid robots, AIDC liquid cooling, and eVTOL.
• Whether Morgan Stanley further adjusts its 2026-2028 earnings forecasts and target price.