Comment:

1. The core asset of Yongkang Zotye reached 4.9 billion yuan and net profit of 270 million yuan in the second quarter. The net interest rate for a single quarter was 5.5%, up from the 4.3% net interest rate in mid-2016, but it was basically the same as the net profit margin of 5.9% for the whole of 2016.

In February, Zotye's overall sales fell 26% from January to July. Among them, traditional fuel SUVs and sedan products fell 32% and 22% respectively. The explosive growth in the car market in 2016, combined with the launch of several powerful new products of the company itself, made last year's base relatively high. In fact, the company's overall sales scale remained healthy.

Beginning in the third quarter, the company's new compact SUV product, the T300, was launched. Changing the imitation style of the past, the T300 showed strong original design capabilities in terms of exterior and interior lighting. It is expected to become Zotye's new landmark model and reshape the Zotye brand image. At the same time, the passenger car market has picked up slightly since July, and sales of other Zotye models are expected to resume their upward trend.

4. Compared with the slightly sluggish state of traditional cars, Zotye's NEV sales increased rapidly, selling 16,000 units in January-July, an increase of 56% over the previous year. Zotye's new energy vehicles are mainly three pure electric A00 class cars, the Cloud 100, the E200, and the Sesame. The prices of these small electric vehicles still have a great price advantage when local subsidies are not taken into account. They will continue to be popular in the future. Zotye is also expected to continue to maintain its position as a first-tier NEV company.

5. We expect the company's net profit to the mother in 2017 and 2018 to be 1.65 billion yuan, corresponding to the dynamic valuation 15 or 13 times. As a first-tier NEV vehicle company, the valuation is still relatively reasonable.

6. Risk warning: sales of new energy vehicles fell short of expectations!