Meet expectations in the first three quarters

Longji Machinery announced its results for the first three quarters: the operating income was 1.073 billion yuan, down 2.13% from the same period last year; the net profit attributed to the parent company was 53 million yuan, up 3.38% from the same period last year, corresponding to 0.14 yuan per share. The company deducted 53 million yuan in non-net profit in the first three quarters, an increase of 28.81% over the same period last year.

Trend of development

3Q the gross profit margin is obviously boosted, and the financial expenses are controlled effectively. 3Q achieved revenue of 309 million yuan, down 19% from the same period last year, mainly due to the decline in the price of raw materials such as raw steel and scrap iron, which led to a decline in product prices, but through cost control and product structure adjustment, the company's gross profit margin increased by 3.7% year-on-year, resulting in a 5% increase in gross profit. In addition, the company's financial expenses 3Q decreased 94% compared with the same period last year, mainly due to the reduction of interest due to the repayment of bank loans by the company. With the completion of the rights issue, the company's financial costs are expected to be further controlled.

We will continue to benefit from the devaluation of the RMB and the recovery of heavy trucks, and are expected to maintain steady growth throughout the year. Longji Machinery accounts for more than half of its long-term overseas export business, and with the repeated devaluation of the RMB and the expectation of future depreciation, the company's overseas income will benefit in the medium and long term. In addition, the recovery of the heavy truck market has also brought continuous positive to the company's revenue. In the later stage, with the control of raw material prices and the adjustment of the company's product structure, the increase in revenue will be reflected. The company released a forecast range of full-year net profit of 5.55 billion yuan to 7.22 billion yuan, corresponding to an increase of 0% to 30%. According to the completion of the first three quarters, the pressure in the fourth quarter is relatively small, and the trend of steady growth can be maintained throughout the year.

Sign R & D agreement to speed up the upgrading of product technology. In August this year, the company signed a cooperative R & D agreement with the Mechanical Science Research Institute to jointly set up a high-end manufacturing research institute to carry out research and development in the direction of lightweight coincidence materials and polyphase strengthening materials. We believe that the establishment of the institute will promote the process of technological transformation and upgrading of the company's products, and the aluminum-based compliance disk that the company will launch in the future is in line with the development trend of domestic and foreign markets, and will bring new performance growth points for the company.

Profit forecast

We keep our full-year earnings per share forecast for 2016 and 2017 unchanged.

Valuation and suggestion

At present, the company's share price corresponds to 71x 2016e P Universe E. We maintain our recommended rating and target price of 17.00 yuan, which is 31.89% upside from the current share price.

Risk.

The price of raw materials fell further, and the car network continued to lose money.