China Wheel - by Phillip Securities Research

A strong set of interim results
14 November 2007

3Q FY07 results review.
China Wheel Holdings (“CWH”) recorded a flat growth in 3Q FY07, as its factory utilization rate reached 98.8%. CWH’s net profit increased 7.9% YoY to RMB 25.9 million in 3Q FY07, on the back of sales growth of 11.4% to RMB 226.9 million. Gross profit increased 6.1% YoY to RMB 38.1 million. The slight dip in GP margin was due to 1) RMB appreciation which affected export
segment’s margin; 2) the Group’s provision of rebates for some promising distributors; 3) the adjustment of staff salaries. Expenses are in line with sales growth.

In 9M FY07, CWH’s net profit grew 49.3% to RMB 80.7 million and sales grew 22.1% to RMB 673 million. Receivables and Payables both increased with sales growth, and remain in healthy range. Gearing went up to 1.9 mainly due to the issue of convertible bonds in August. CWH also achieved positive cash flow of RMB 42 million in 9M FY07.

Growth driven by newly built Tianjin plant.

The phase I of Tianjin plant is on track, and will start commercial production in the beginning of 2008. CWH also formed a joint venture company Tianjin Diastal Wheel Manufacturing with Qinhuangdao Discastal (10% of JV) and Macau Ruizhi (10% of JV). Tianjin Dicastal will operate the 2 million wheels of the new Tianjin plant (Phase I only). As Qihuangdao Discastal is a qualified OEM supplier to the Toyota car plant in Tianjin and Macau Ruizhi is an established distributor of wheels to various Japanese car plants in Guangzhou and other regions, the management of CWH is very confident to capitalize on their partners’ expertise and accelerate the new plant’s utilization rate to 100% by 3Q FY08.

Maintain BUY and Fair Value Estimate of S$1.36.

We have revised our forecasts slightly by adjusting up the FY07 and FY08’s earnings (RMB 4 million and RMB 3.5 million respectively) but adjusted down FY09 earnings (RMB 8 million). CWH remains an appealing proxy to China’s booming auto sector. We maintain our BUY recommendation and Fair Value Estimate of S$1.36, based on the same relative valuation of 12x FY08 PER.