[Key Investment Points] The company is a leading independent supplier of auto parts systems in China, with customers spanning domestic automakers. Wanxiang Qianchao specializes in the production of automotive system parts and assemblies such as chassis and suspension systems, automobile braking systems, automobile transmission systems, automobile fuel exhaust systems, wheel hub units, bearings, etc., and is currently one of the main independent automobile system parts production bases in China. The company's products mainly target the supporting market for OEMs, and its customers are all over domestic automakers. Currently, the company has established strategic partnerships with more than 10 Chinese automakers, including FAW, SAIC, Dongfeng, Changan, BAIC, JAC, and Chery. There is still room for improvement in the profits of the company's traditional main business, and is actively shifting to new energy vehicle parts. (1) The company uses three major means to enhance the profit margins of traditional business. The first is to improve production efficiency and product quality through machine replacement, intelligent transformation, etc.; second, to raise product grade and market level to increase revenue and gross profit margin; and third, to “shut down and transfer” products with no advantages to reduce sources of loss. (2) The company entered the new energy drive motor business through equity participation. The company invested 110 million yuan in Tianjin Songzheng Company in July 2015. Its main product, the new energy drive motor, is one of the three core components of new energy vehicles. Its main customers include leading bus companies such as Yutong Bus, Xiamen Jinlong, Xiamen Golden Travel, Suzhou Jinlong, and Zhongtong Bus. Tianjin Songzheng has strong technology research and development capabilities and subsequent development capabilities, and is one of the leading enterprises in the industry. Wanxiang Qianchao's participation in Tianjin Songzheng had little impact on the company's performance in the short term, but from a medium- to long-term perspective, on the one hand, it is in line with the company's strategy of transformation to the NEV industry and will promote the company's transformation and upgrading; on the other hand, it can improve the company's layout on the core components of new energy vehicles, creating a synergistic effect for the company to fully develop the NEV business. (3) The company will enter the battery business. New energy vehicles have become an important direction for the development of the automobile industry and have ushered in explosive growth. Batteries are one of the three core components of new energy vehicles, and the company is planning development. The company's management will negotiate with the majority shareholders to invest in Wanxiang A123, which has world-leading technology in the lithium battery industry. After the acquisition of A123, automotive power batteries, start/stop batteries, and energy storage batteries will become new growth points for the company's performance, and will form further synergies with the motor business and the electric vehicle business that Wanxiang Group will inject into the company in the future. The time is becoming more and more ripe for the Group's electric vehicle business to inject a wave of money into all directions. (1) Wanxiang Group has a complete industrial chain for battery, motor, electronic control and vehicle R&D and manufacturing. The group successively acquired A123, the most advanced battery manufacturer in the US, in January 2013, and Fisker (Fisker), a well-known American electric vehicle manufacturer, in February 2014. In 2015, Wanxiang Group also signed a cooperation agreement with SAIC Motor Group to establish a joint venture with a planned investment of 5 billion yuan to eventually form an industrial capacity of 10,000 new energy buses. Wanxiang Group currently owns new energy vehicle industry companies such as Wanxiang A123, Fisco, and Wanxiang Electric Vehicles, etc., and has perfected the technical reserves of the entire upstream and downstream industrial chain. (2) Wanxiang Group has injected high-quality assets into Wanxiang Money many times. The Group sold shares in Wanxiang Systems (49%), Wanxiang Precision (40%), and Qianchao Bearing (40%) to Wanxiang Qianchao in December 2008; sold 66.69% of Jiangsu Senwei's shares to Wanxiang Qianchao in December 2012; and sold 90% of Tongda's shares to Wanxiang Qianchao in December 2013. (3) Wanxiang Group has promised to inject electric vehicle assets into Wanxiang's financial tide at the right time. In December 2010, Wanxiang Group Corporation, Wanxiang Electric Vehicle Co., Ltd. and Wanxiang Qianchao signed the “Strategic Cooperation Framework Agreement on the Electric Vehicle Industry”. In the agreement, Wanxiang Group Company promised that when Wanxiang Qianchao believes that the conditions for investing in Wanxiang Electric Vehicle Company are ripe and puts forward an investment motion, or when Wanxiang Electric Vehicle Company completes industrialization and the profit situation is normal and stable, Wanxiang Group Company agreed that it can transfer part of its shares in Wanxiang Electric Vehicle Company to the company, or if Wanxiang Qianchao Company invests in Wanxiang Electric Vehicle Company, or if Wanxiang Qianchao Company invests in Wanxiang Electric Vehicle Company in the form of a capital increase, or transfer of shares in Wanxiang Electric Vehicle Company A combination of funding methods. (4) New energy vehicles have entered a stage of accelerated development, and we judge that the time for Wanxiang Group to inject electric vehicles is becoming more and more mature. In 2014, China produced a total of 83,900 new energy vehicles, an increase of nearly four times over the previous year. From January to August 2015, a total of 123,500 new energy vehicles were produced, a three-fold increase over the previous year, surpassing the United States to become the world's largest producer of new energy vehicles. It is estimated that sales of new energy vehicles will reach 220,000 units in 2015, and new energy vehicles have entered a stage of accelerated development. At the same time, Wanxiang Group and SAIC Motor Group jointly set up a new energy bus company. Wanxiang Electric Vehicles will enter the profit stage along with the rapid development of the industry. Therefore, we judge that the time for Wanxiang Group to inject a tide of money into Wanxiang's electric vehicles is becoming more mature, and the pace is getting closer. Profit forecast and investment recommendations: We forecast the company's operating income for 2015-2017 to be 10.54 billion yuan, 11.56 billion yuan and 12.94 billion yuan respectively, and net profit of 886 million yuan, 960 million yuan and 1,081 million yuan respectively, with growth rates of 25.3%, 8.4% and 12.6% respectively, and corresponding EPS of 0.39 yuan, 0.42 yuan and 0.47 yuan respectively. At present, it is still difficult for us to determine the injection time, method, and scale of the Group's new energy vehicle business, and the current business conditions and financial information of related businesses are difficult to obtain, so it is difficult to predict profits and make reasonable valuations for related businesses. However, considering factors such as the company's expansion into the motor business, the company's active transformation to new energy vehicle parts in the future, and the expected injection of large assets such as universal electric vehicles, etc., the company's stock price should enjoy a certain premium. As a result, we tend to give positive investment suggestions, giving a “increase in holdings” rating for the first time, with a target price of 21 yuan. Risk warning: The macroeconomic downturn has led to a decline in automobile sales, which in turn has led to a decrease in demand for auto parts and a drop in prices; the uncertainty of the Group's new energy vehicle business injecting a wave of money into Wanxiang; there are fluctuations in the development of new energy vehicles, and demand falls short of expectations.