The certainty of the policy is enhanced, and it is expected that the stock models will also be included in the scope of installation.
The latest draft of the Technical conditions for vehicle Operation Safety was formed in November 2010. We expect the approval draft to be released in June 2011, and the standard will eventually be released in the fourth quarter of 2011. The transition period for new cars is short, and we expect new cars to start implementing the new standards in the first quarter of 2012. GB7258 is suitable for all motor vehicles on the road, so stock models will also be included in the installation scope.
The installation of the retarder of the new car may be much stronger than we had expected.
We thought that the installation and implementation of the retarder at the initial stage of the policy would be relatively low, and we expected that the installation rate of the new heavy truck retarder in 2012 was only 18%, but according to our recent research, the relevant departments will be very strict in enforcing the standards. if the newly purchased vehicle does not install the retarder, it may affect the registration of the vehicle, and we expect that the installation of the retarder of the new car will far exceed our previous expectations.
When only considering the installation of new cars, the valuation of the company has become more attractive.
Under our very conservative assumptions (the installation rate of new cars in 2012 is 18%), we expect the company to have EPS0.55 yuan in 2012, and the current share price is equivalent to PE31.2 times in 2012. Our sensitivity analysis shows that when the new car installation rate reaches 40% in 2012 (also conservative), the company's EPS will reach 0.89, the current share price is equivalent to 2012 PE19.3 times, we think the company valuation is already very attractive.
Valuation: reiterate the "buy" rating, with a target price of 28.75 yuan
It should be pointed out here that we are very conservative about the company's profit forecast for 2012, and it is possible to raise the profit forecast significantly in the future. We are optimistic about the long-term development prospects of the company and China's retarder industry, reiterate the "buy" rating, and maintain the target price of 28.75 yuan. We give the auto parts industry an average price-to-earnings ratio of 13 times after the high-speed growth period at the end of 2016, and discount its market value at 7.6% cost of equity capital to its target price of 28.75 yuan in 2010.
