The company announced a few days ago that on February 17, 2017, the company signed a "Strategic Cooperation Framework Agreement" with Ningbo Fenghua Government, Hong Kong Zhengdao Group and Beijing Zhiyun Sifang. It was jointly decided to set up Ningbo Jingwei Power Battery Co., Ltd. in Fenghua District, Ningbo City, Zhejiang Province, to produce lithium titanate batteries, with a total investment of 2 billion yuan, of which the company contributed 540 million yuan, accounting for 27% of the shares. Prior to this, on January 21, the company's shareholding subsidiary Shenzhen Wuzhou Dragon completed capital increase and share expansion. Ningbo Fenghua Zhide subscribed for 7500 additional shares of Shenzhen Wuzhou Dragon with 999.75 million yuan in cash at a price of 13.33 yuan per share. Fenghua Zhide holds a 20% stake in Shenzhen Wuzhou Dragon after the completion of the investment. The company previously has a layout in new energy passenger cars, new energy buses and other fields, this participation in the establishment of battery enterprises, new energy vehicle jigsaw puzzle more complete, optimistic about long-term development. We expect the company's earnings per share from 2016 to 2018 to be 0.88,1.11 and 1.26 yuan respectively, giving the company 20 times the 2017 price-to-earnings ratio and a reasonable target price of 21.60 yuan to maintain the buy rating.
Support the main points of rating
Participate in the establishment of battery enterprises, the layout of new energy vehicles is more perfect. Power battery is the core component of new energy vehicles, and the value of bicycles is very high. Lithium titanate battery has the advantages of good safety, long life, fast charge and quick release, so it is more suitable to be used in buses and other fields. The company has previously had a layout in the fields of new energy buses and passenger cars, and this participation in the establishment of lithium titanate battery production enterprises is expected to complement Wuzhoulong's new energy bus technology and play a role in promoting the company's production of new energy vehicles. The layout of the company's new energy vehicle industry is more perfect and is optimistic about long-term development.
Wuzhou Dragon completed the increase of capital and shares, and the enhancement of financial strength is conducive to the follow-up development. In December 2015, the company acquired a 35% stake in Shenzhen Wuzhou Dragon for 552 million yuan, equivalent to 3.83 yuan per share. In January 2017, Fenghua Zhide subscribed for 75 million additional shares issued by Shenzhen Wuzhou Dragon with cash of 999.75 million yuan, at a price of 13.33 yuan per share. The company's investment in Wuzhou Dragon has increased by 248.0%. New energy vehicles are capital-and technology-intensive industries. Wuzhou Dragon has greatly enhanced its financial strength by increasing its capital and shares, which is conducive to the follow-up development.
In addition, the steady progress of Wuzhou Dragon's listing in Hong Kong is expected to contribute more investment income to the company.
Main risks faced by rating
1) the business development of new energy vehicles is lower than expected; 2) the business development of internal and external accessories is lower than expected.
Valuation
We expect the company's earnings per share from 2016 to 2018 to be 0.88,1.11 and 1.26 yuan respectively, giving the company 20 times the 2017 price-to-earnings ratio and a reasonable target price of 21.60 yuan to maintain the buy rating.