The third quarter results were in line with expectations. From January to September 2010, the company achieved operating income of 543 million yuan, an increase of 28.32% over the previous year; operating profit of 114.36 million yuan, an increase of 16.14% over the previous year; net profit attributable to the parent company of 97.09 million yuan, an increase of 5.03% over the previous year; and basic earnings per share of 0.38 yuan.
Looking at single-quarter data, the third quarter achieved operating income of 219 million yuan, an increase of 21.67 percent over the previous year; operating profit of 53.1 million yuan, an increase of 1.76% over the previous year; net profit attributable to the parent company was 44.06 million yuan, a decrease of 15.28% over the previous year; and earnings per share of 0.17 yuan.
The industry continues to recover, and the company's revenue has increased dramatically. Market demand in the domestic and foreign machine tool industry showed a restorative increase. In the period from January to September, China produced 545,000 units of metal cutting machines, an increase of 32.3% over the previous year, and the growth rate increased 0.1 percentage points over the previous year; the cumulative output of CNC machine tools was 157,000 units, an increase of 74.4% over the previous year, and the growth rate increased 6.5 percentage points over the previous year. The numerical control rate of the company's machine tools reached 80%. Benefiting from the continuous recovery of the machine tool industry, the company's product sales grew rapidly. The company achieved a 28.32% year-on-year increase in operating income in the third quarter, but revenue in the third quarter fell 2.14% month-on-month.
Product sales structure changed, and comprehensive gross margin declined. From January to September 2010, the company's consolidated gross profit margin was 34.01%, down 2.13 percentage points from the previous year. Among them, the consolidated gross profit margin for the third quarter was 35.31%, a year-on-year decrease of 5.15 percentage points; a year-on-month increase of 2.49 percentage points. It is mainly due to the impact of changes in product sales structure, mainly due to an increase in sales of ordinary machine tool products and a decrease in sales of high-speed rail CNC gantry composite machine tools with high added value.
The ability to control expenses during the period was improved. From January to September 2010, the company's expenses rate for the period was 11.77%, a decrease of 0.35 percentage points over the previous year. Among them, the sales expenses ratio was 2.89%, an increase of 0.35 percentage points over the previous year; the management expenses rate was 7.09%, down 0.41 percentage points from the previous year; and the financial expenses ratio was 1.79%, down 0.29 percentage points from the previous year.
Join hands with Hefei University of Technology to lay out the photovoltaic industry. The company invested in the establishment of Weihai Huadong Power Co., Ltd. to undertake a cooperative project between Atomic Company and the Photovoltaic System Engineering Research Center of the Ministry of Education of Hefei University of Technology to continue the production and operation of key conversion equipment for photovoltaic power generation and other related electronic product businesses. The company will use its superior technology and R&D advantages to expand and strengthen the industrialization of photovoltaic scientific research results.
Profit forecasts and ratings. We expect the company to achieve earnings per share of 0.56 yuan, 0.72 yuan, and 0.95 yuan respectively from 2010 to 2012. Based on the closing price of the previous trading day, the corresponding dynamic price-earnings ratios were 52 times, 41 times, and 31 times. The current valuation level is high, and we maintain a “neutral” rating.
Risk warning. 1) The risk that orders for CNC grinding machines for downstream high-speed rail will fall more than expected;
2) The adverse effects of slow progress in additional targeted fund-raising projects. 3) The photovoltaic industry may be affected by changes in domestic and foreign policies, markets, technology, etc.