The company's profit in the first half of the year fell 5% from a year earlier, slightly lower than expected.
In the first half of the year, the company achieved operating income of 111 million yuan, an increase of 15.18% over the same period last year, which was higher than the growth rate of about 10% in the large and medium-sized bus industry, which showed the good competitiveness of the company's products and continued to expand its market share. The company realized net profit of 17.3464 million yuan, down 5% from the same period last year, and achieved earnings per share of 0.08 yuan, slightly lower than our expectation of 0.09 yuan. We believe that the decline in profits is mainly due to the sharp rise in the price of raw material copper, which caused the gross profit margin of the company's leading eddy current retarder to fall by 3.86 percentage points compared with the same period last year (copper prices rose by about 22% in the first half compared with the same period last year).
We expect the bus industry to pick up gradually in the second half of the year, and the company's annual performance is still expected to grow positively.
The third and fourth quarters are the traditional peak season for large and medium-sized buses. We expect that with the gradual recovery of the downstream bus industry and the stability of raw material prices, the company's performance is expected to pick up month-on-month and is still expected to achieve positive growth for the whole year.
It is expected that GB7258 will be formally implemented at the end of 2011, and the transition period for heavy truck to install retarder may be 2 years.
We expect that GB7258 will be formally implemented at the end of 2011, and there may be a two-year transition period for the installation of retarders for heavy trucks, that is, after two years, all heavy trucks on the road must be equipped with compliant retarders. Therefore, we expect that the installation of the retarder will begin in 2012, and we maintain the judgment that the installation rate of the heavy truck retarder is 18% and 36% respectively in 2012 / 2013.
Valuation: keep the "buy" rating and the target price of 28.75 yuan unchanged
We maintain the "buy" rating and the target price of 28.75 yuan. The derivation of the target price is based on the UBS VCAM discounted cash flow model, where WACC is 8.06 per cent and Beta is 0.83.
