New Aircraft Parts JV with Airbus

The company announced that Harbin Hafei Automobile Industry Group Co., Ltd., its parent company, has signed a framework contract with Airbus China Co., Ltd. to establish a joint venture based in Harbin, which will produce aircraft parts made from composite materials. Harbin Hafei Automobile, a subsidiary of China Aviation Industry Corporation II, will hold an 80% stake in the new joint venture, which will be completed at the beginning of 2009, while Airbus China will hold the remaining 20% stake.

The new joint venture will be engaged in the production of aircraft parts for Airbus A320 and Airbus A350XWB, strictly abiding by the quality standards and technical requirements of Airbus.

On 26 Nov 2007, Airbus signed a memorandum of understanding with the National Development and Reform Commission, committing approximately 5% of Airbus A350XWB parts to China's aviation industry. On the same day, Airbus signed a framework agreement with China Aviation Industry Corporation II to jointly establish a production centre for aircraft parts made from composite materials.

As the proportion of stakes in the new joint venture shared by the company, its parent company and other Chinese enterprises has not been finalized, stock analysts have not changed their profit projections for the company. They have maintained the original EPS estimates at RMB 0.31 in 2008, RMB 0.32 in 2009 and RMB 0.35 in 2010, with a compound annual growth rate of 6%. The target stock price within six to twelve months is RMB 18.00 per share and a 'neutral' rating has been maintained on the stock.

Risk warnings: The common shares of the company are concentrated in the hands of a few shareholders, which could result in a big fluctuations if the aforementioned shareholders were involved in a large transaction.


Source: China Securities Journal

Date: 18 Jul 2008

CN01/BG/RZ/BT