Long term, outsourcing continues. But
near term the operating environment for
component makers is difficult
􀀗 We prefer defensive companies. Select
companies on (1) high AM exposure, (2)
low exports, (3) strong balance sheets
􀀗 Top pick is Xinyi Glass (OW (V)), which
is transforming into a diversified glass
giant. Also OW on Tong Yang, the AM
operator. Norstar, Minth are Neutral (V)
Strong structural story, but weaker economic backdrop.
Chinese car component makers are gaining market share as
global car companies buy car parts in China.
We expect this trend of building new supply chains in China
to continue in the coming years. However, the operating
environment will become increasingly difficult as economies
slow and car demand weakens.
More defensive stock selection. Therefore, we take a more
defensive attitude towards stock picking in this sector and
we prefer stocks that have:
􀀗 High AM (after market) exposure; this market is much less
cyclical than the market for components for new cars
􀀗 Strong balance sheets
􀀗 High exposure to the domestic market rather than
weakening export markets
Xinyi Glass is our preferred stock. This company is
transforming into a diversified glass maker.
Tong Yang is a dominant AM component maker and is
improving its OEM business in China.

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