1~3Q17 performance exceeded expectations
Eishite announced 1~3Q17 results: revenue of 5.47 billion yuan, an increase of 45.5% over the previous year; Guimu's net profit was 524 million yuan, up 93.4% year on year. Growth in photovoltaic and data center products in the third quarter exceeded expectations. Gross margin increased 2.8 ppt year over year, mainly due to demand supporting price stability and an increase in the share of photovoltaic power generation revenue; the management expense ratio fell 0.9 ppt, stemming from high revenue growth and cost control; repayment pressure was high. Accounts receivable increased 33% from the beginning of the year, the financial expense ratio increased 0.4 ppt, and operating activity cash flow - 336 million.
Development trends
PV installed capacity growth remains strong, helping performance growth exceed expectations. The company already has nearly 500MW photovoltaic power plants connected to the grid to generate electricity, with 1H17 generating revenue of 143 million yuan. Starting in the third quarter, the performance contribution will be even more significant. The rise of distributed photovoltaics helped domestic PV installations reach 42 GW in the first three quarters, and the company's PV system integration business revenue grew rapidly. However, due to potential electricity price adjustments, there is still uncertainty about the sustainability of future growth of photovoltaic products.
Data centers are driving high performance growth in the power supply sector. Revenue from the 1H17 high-end power sector increased 88.1% to $970 million, mainly due to accelerated project delivery of data center solutions. Due to the increase in the share of solutions, the increase in outsourced supporting products caused the sector's gross margin to drop by 7.9ppt to 25.5%. The company actively explores various cooperation models using BT, BOT, and building self-operation, and invests in Guofu Guangqi to expand IDC and cloud computing business, but there is some uncertainty about new business expansion.
The charging equipment sector is expected to break out of its trough. Affected by the lackluster production and sales of new energy vehicles, the revenue of 1H17 charging equipment was only 9.26 million yuan. With the recent recovery in production and sales of new energy vehicles, sector revenue is expected to resume growth. The company has already built charging stations in Dongguan, Guangzhou and other cities, and will expand the smart three-dimensional parking garage market to achieve continuous growth in performance.
Profit forecasting
As the growth of the PV and data center business exceeded expectations, we raised our earnings per share forecast for 2017 and 2018 by 26% and 22% from RMB 0.23 and RMB 0.28 to RMB 0.29 and RMB 0.34, respectively.
Valuation and advice
Currently, the company's stock price corresponds to 2017 30x P/E. Considering the decline in risk appetite brought about by the company's current acquisition and the uncertainty of the Securities Regulatory Commission's investigation, we maintain a neutral rating and target price of RMB 9.00, which has room for 3.57% upward from the current stock price.
risks
Electricity restrictions and electricity price subsidies in the photovoltaic industry; administrative penalties imposed by the Securities Regulatory Commission.
