I. Overview of events

The company released its third-quarter results report.

II. Analysis and judgment

The company's revenue and net profit increased significantly in the first three quarters, mainly driven by a sharp increase in the production and sales of matching models:

1) the operating income in the first three quarters was 1.771 billion yuan, an increase of 116.20% over the same period last year; the net profit attributable to the owner of the parent company was 71.7851 million yuan, an increase of 92.67% over the same period last year; and basic earnings per share was 0.1554 yuan, an increase of 92.8% over the same period last year.

2) the net profit attributable to the owner of the parent company in the third quarter was 16.1411 million yuan, compared with a loss of 30.1717 million yuan in the same period last year, and operating income was 573 million yuan, an increase of 170.78% over the same period last year.

3) the substantial increase in net profit is mainly due to the substantial increase in investment income of Dongan Mitsubishi and the substantial increase in sales volume of Dongan headquarters.

We expect the company to see a substantial increase in sales and profits in the fourth quarter:

1) the automotive industry as a whole, the third quarter is off-season, the fourth quarter into the peak sales season, will lead to Dongan engine sales increase. Dongan headquarters and Dongan Mitsubishi sold only 73000 and 90,000 units in the third quarter. Dong'an has 10 days of high-temperature vacation in August, and production is also down from a year earlier. And the average monthly sales of Auchan models matched by Dongan headquarters are now 10,000, and the production capacity will be expanded in October, and the subsequent Auchan sales are expected to further increase, which will lead to Dongan sales and revenue.

2) the profit level of Dongan headquarters is expected to increase. The third quarter is the traditional overhaul season, this year due to the increase in production capacity and product line adjustment, maintenance costs are relatively high. Earnings are expected to improve in the fourth quarter as sales increase and expenses fall.

3) the contribution of investment income of Dongan Mitsubishi has increased steadily. CX70 now sells more than 10,000 units a month, and CS35 and CS75 have returned to growth after a period of decline. Dongan-Mitsubishi capacity has been saturated and investment returns are stable.

Third, profit forecast and investment suggestions

Driven by Changan vehicle business, the company's performance has entered a strong growth cycle, the performance of this part has reversed, and the investment income has increased steadily. Regardless of the future income of 6AT gearbox, we estimate that the EPS from 2016 to 2018 will be 0.33,0.49,0.61, respectively, and the corresponding PE will be 36,24,19 times. Maintain the "highly recommended" rating.

IV. Risk hints

The sales of downstream matching models are not as expected; the market development of 6AT and 1.2T new products is not as expected.