Luxshare's Move Into EV Market Takes Time to Yield Benefits; Fair Value Estimate Retained

We retain our CNY 35.50 fair value estimate on Luxshare Precision following its cooperation agreement with Chery Group, a Chinese automaker with over 20 years of history. Shares continue to look fairly valued after the agreement. While we think it shows Luxshare Precision is rightly diversifying away from consumer electronics, particularly Apple, we identify several issues that the company has to resolve in order to sustain its growth for the next few years. These issues, and the fact that customers have to rebuild almost from scratch, back our view that financial benefits are minimal for the next three to five years.