Main points of investment
According to the company's third quarterly report for 2016, the operating income in the first three quarters reached 2.93 billion yuan, down 12.6 percent from the same period last year, and the gross profit margin was 19.3 percent, up 1.2 percent from the same period last year. The net profit belonging to shareholders of listed companies in the first three quarters of 2016 was 18.47 million yuan, down 69.8 percent from the same period last year. The company's sales revenue in the third quarter was 1.22 billion yuan, down 5.8% from the same period last year, and the gross profit margin was 18.9%, up 0.6% from the same period last year. The net profit attributed to shareholders of listed companies in the third quarter was 2.44 million yuan, down 94.8% from the same period last year. The company estimates that the net profit attributed to shareholders of listed companies for the whole of 2016 is 1986-29.79 million yuan, an increase of 0% to 50%.
Comments:
The decline in quarterly sales revenue is restricted by the industry boom: the company's sales revenue fell 12.6% in the first three quarters of 2016 compared with the same period last year. The company's main business, LED lighting and home appliance processing business, declined due to the poor market climate in the industry. As the price of LED chips rebounded from the second quarter, and the trend of RMB depreciation brought positive expectations for the company's home appliance processing and export business. The decline in sales revenue in the third quarter slowed to 5.8% compared with the same period last year, and the company's revenue is expected to resume growth in the future with the gradual recovery of the overall prosperity of the industry.
The year-on-year rise in gross margin shows that costs are manageable: the company's gross margin rose 1.2 percentage points year-on-year to 19.3% in the first three quarters and 0.6 percentage points in the third quarter. Although the scale of the company's sales revenue has declined due to the influence of the industry market, the profitability of the products has been improved, which shows that the company can still effectively control production costs and adjust the product structure in the face of poor market environment. Furthermore, it shows that the company is more competitive in the market industry.
The expense rate is basically controllable, and the operation of the associated company is stable: the company's three expense rates in the first three quarters rose slightly to 23.4% compared with the same period last year. The decrease in the amount of expenses but the decline in income led to an increase in the expense rate. The operation of the company's important shareholding company Rex Lighting is improving. Under the condition that the downstream LED lamps continue to promote the replacement of traditional energy-saving lamps, the terminal market demand still maintains a steady growth. In the future, as the upstream of the company's LED and home appliance processing resume growth, the expense rate is expected to remain stable.
Investment advice: we expect the company to earn 0.02, 0.15 and 0.24 yuan per share from 2016 to 2018, respectively. The return on net assets is 0.4%, 3.7% and 5.7% respectively, and the proposal to increase holdings-An is given. The six-month target price is 7.20 yuan, which is equivalent to the dynamic price-to-earnings ratio of 423.5, 48.0 and 30.0 times from 2016 to 2018.
Risk tips: LED product price fluctuations; RMB exchange rate fluctuations affect corporate profits; the launch and implementation of government subsidy policies.
