1~3Q17 performance meets expectations
Jiangte Motor announced 1~3Q17 results: revenue of 1.94 billion yuan, down 7.5% from the same period last year; net profit of 211 million yuan, an increase of 21.9% over the same period last year, in line with expectations. The company expects 2017 full-year net profit to increase by 60% to 316-375 million yuan over the same period last year. 3Q new energy vehicle business is greatly affected by industry policies, resulting in a decline in revenue, a reduction in gross profit margin (2.2ppt) and an increase in expense rate (2.1ppt). The rapid growth in performance is mainly due to the reversal of bad debts, income from asset disposal and government subsidies.
Trend of development
Kowloon's worst performance is over and growth is expected to accelerate in 2018. Revenue from 1H17 new energy vehicles fell 78.4% year-on-year to 111 million yuan. Delivery of two large orders with a total capacity of 4 billion yuan by Yinlong and national transport capacity will begin in the fourth quarter and be completed by the end of 2018. The market of new energy buses and logistics vehicles has picked up since June, and the growth has accelerated in September. Kowloon is expected to fulfill its performance pledge of 221 million yuan remaining in 2017, and will achieve high performance growth in 2018.
Lithium carbonate will begin to be released in the fourth quarter. The new production line has been in mass production for nearly one month, reaching 70% of the design capacity (5000 tons / year), will gradually climb the slope, and is expected to make a significant contribution in the fourth quarter. The success of this technological transformation also lays the foundation for the additional 10,000 tons of lithium carbonate production capacity that the company will add. The production cost of lithium carbonate is expected to be reduced from 90,000 yuan to 70,000 yuan per ton. 1H18 is expected to have a capacity of 15000 tons to produce lithium carbonate from lepidolite. The production line jointly built by the company and Baowei is expected to form a capacity of 10,000 tons of lithium carbonate and 5000 tons of lithium hydroxide in 2018.
After all production, lithium carbonate + lithium hydroxide production capacity will reach about 30, 000 tons, equity capacity of 22500 tons, performance growth flexibility is very large.
Take a stake in Tawana to ensure the supply of spodumene and share the investment income. The spodumene used in the joint venture with Baowei to produce lithium carbonate and lithium hydroxide comes from the Balder Mountain project in Australia, which is 50 per cent owned by AMAL and 50 per cent by Tawana. Baowei has taken a 13.47 per cent stake in AMAL. Jant also invested in Tawana through its subsidiary Weir of Germany, enabling both sides of the joint venture to achieve synergy of interests with spodumene suppliers, which will help ensure the timely supply of spodumene after the completion of the new production line next year, ensure the release of production capacity and contribute to performance. The lucrative Balder Hill project will also bring a stable return on investment.
Profit forecast
We keep our earnings per share forecast for 2017 / 2018 unchanged.
Valuation and suggestion
At present, the company's share price corresponds to 2018 39x Pmax E. We maintain our recommended rating and target price of 18.34 yuan, which is 23.5% upside from the current share price.
Risk
The production and sales of new energy vehicles are lower than expected; the expansion of lithium carbonate production has slowed down.