Maintain the "overweight" rating. Maintain the forecast of 0.31 yuan and 0.42 yuan for EPS from 2014 to 2015, and maintain the target price of 16.8 yuan. From January to September, the company achieved revenue of 2.22 billion, an increase of 1% compared with the same period last year, and realized non-return net profit of 120 million, down 3.8% from the same period last year.
The company has a high degree of certainty about the rapid growth of Lingzhong's investment income. The company's investment income to the associated company Lingzhong is an important source of profit, with an increase of 283% in the third quarter from the same period last year and 130% from the previous quarter. We speculate that Lingzhong's entry into the supply chain system of Shanghai Volkswagen and GM in 2015 is a high probability event. Under the high pressure of the national fuel red line, turbocharging is one of the most feasible solutions to reduce fuel consumption, and Lingzhong's performance is expected to continue to accelerate growth.
The growth rate of administrative expenses and sales expenses is higher than we expected. The company achieved revenue of 600 million yuan in the third quarter, down 7% from the same period last year; the net profit returned to the home was 30 million, down 11% from the same period last year; and the gross profit margin increased by 4% year-on-year to 25% from the same period last year. However, the growth rate of administrative expenses and sales expenses exceeded our expectations, resulting in lower-than-expected profits in the third quarter. The main reason is that the scale effect of ① new products has not yet been realized, and the impact of depreciation leads to an increase in management expenses; the impairment loss of ② assets increased by 10 million compared with the same period last year; and during the period of centralized promotion of ③ new products, the short-term increase in service costs led to an increase in sales expenses.
Risk hint: the promotion of new diesel engine products is not as expected; the growth rate of turbocharger is not as expected.