Performance increased by 13.0%, in line with expectations

Ketai Power announced 1H17 results: operating income of 495 million yuan, an increase of 31.3% over the same period last year; net profit belonging to the parent company was 16.15 million yuan, an increase of 13.0% over the same period last year, corresponding to earnings per share, which was in line with expectations. The year-on-year decline in gross profit margin (1.0ppt) was mainly due to higher costs of imported parts affected by the exchange rate; lower sales / management expense rates, mainly due to the divestment of Jetstar, a subsidiary with a higher expense rate this year; and Zhiguang's energy-saving net profit fell by 36.2%, resulting in a decrease in investment income. The loss of bad debts increased to 14.27 million yuan due to income growth, which was a drag on performance.

Trend of development

The income of generator sets has achieved high growth, and the gross profit margin is under pressure slightly. Revenue from the 1H17 generator unit sector rose 39.4% to 471 million yuan, slightly exceeding expectations. The economy has stabilized, demand has rebounded, and data centers have become the downstream industry that has made the greatest contribution to growth, with an increased market share. In overseas markets, the company and Ted play a synergistic effect, sharing the procurement platform can reduce costs.

However, due to increased competition and engine imports affected by the exchange rate, gross profit margin fell 1.3ppt.

The electric logistics vehicle operation project is expected to accelerate in the second half of the year. The company issued a revised version of the fixed increase plan, which is intended to raise no more than 813 million yuan. From 2017 to 19, 11000 electric logistics vehicles and 5500 charging piles will be operated, and an intelligent operation and management platform will be built. Although the company's car purchase cost has risen after the subsidy has gone downhill, given the cost advantage of electric vehicles and the strong demand for electric replacement of logistics vehicles, the leasing business is expected to advance steadily, with plans to promote about 2000 vehicles a year. However, as the industry is in a period of policy adjustment, the fixed increase plan still needs to be approved by the CSRC, and the promotion progress of logistics vehicle business is still uncertain.

Invest in Jinghong technology and lay out the manufacturing of new energy vehicle parts. The company announced that it intends to invest 10,000 yuan to participate in Jinghong Technology, a supplier of power battery pack and battery management system for new energy vehicles, with a stake of 20%. Jinghong Technology has cooperated with Changan, Dongfeng and other household appliance animal car factories to develop powertrain products, and 2H17 is expected to achieve batch sales. This investment shows Ketai's determination to continue to expand the new energy vehicle industry, but we believe that Jinghong Technology, as a newly established start-up, will face fierce competition and there is still uncertainty about its future development.

Profit forecast

We maintain our earnings per share forecast for 2017 / 18 unchanged.

Valuation and suggestion

At present, the company's share price corresponds to the 2018 50xP/E. We maintain a neutral rating, but raise our target price by 3.39% to 14.35 yuan, which is 1.91% lower than the current share price. Based on the segment valuation method, switch to the target market value of 4.59 billion yuan in 2018.

Risk.

The promotion of electric logistics vehicle operation has slowed down; overseas business expansion is lower than expected.