Main points of investment:

The net profit of homecoming increased by 0.94% in the first three quarters of 2017 compared with the same period last year. The company announced its results for the first three quarters of 2017, with revenue of 443 million yuan, an increase of 2.54% over the same period last year, and a net profit of 107 million yuan, an increase of 0.94% over the same period last year. Of this total, revenue in the third quarter was 149 million yuan, down 14.92 percent from the same period last year, and the net profit returned to the mother was 36 million yuan, down 5.78 percent from the same period last year.

During the period, the expense rate increased slightly, the gross profit margin declined as a whole, and increased in the third quarter compared with the previous quarter. In the first three quarters of 2017, the company's expense rate during the period was 16.79%, an increase of 1.7pct over the same period last year, including sales expense rate 7.13%/+1.09pct and management expense rate 10.04%/+0.93pct. The gross profit margin on sales was 39.27%, down from the same period last year, mainly due to the decline in the price of electronically controlled products. In terms of trend, the gross profit margin in the third quarter was 37.16%, which was 35.86% higher than that in the second quarter, reflecting that product prices have stabilized in the third quarter. We do not expect product prices to change much in the fourth quarter, and the gross profit margin in a single quarter may be close to the level of the third quarter.

The poor market of new energy buses affects electronic control sales in the first three quarters and may continue to pick up in the fourth quarter. In the first three quarters of 2017, we expect the company's electronic control business revenue to be basically the same as last year. In the case of poor production and sales of new energy bus market, relying on logistics vehicle market development, etc., still achieved good results. From the industry point of view, according to the energy-saving network data from January to September 2017, the pure electric bus market produced a total of 27684 vehicles, down 45% from the same period last year. At the same time, we expect the electric control price of the mid-stream motor to drop by 20%, which will greatly affect the performance of motor electronic control manufacturers. However, from the point of view of the trend, affected by the launch of bidding by bus companies, the landing of price negotiations and the landing of land subsidy policies, the pure electric bus market has resumed since June, with monthly output rising to 5550, maintaining more than 5000 in June-September and more than 8000 in September. Entering the fourth quarter, it is expected that the warming trend of production and sales of electric buses will continue. The new energy special purpose vehicle market has performed well in the past 17 years. Energy-saving network data show that the monthly output in July has exceeded 100 million vehicles. We expect the annual production and sales to exceed 100000 vehicles, effectively driving the income level of motor electric control manufacturers.

The business of medium and low voltage converter is sound, and the recovery in the lower reaches is still continuing. The industrial control industry began to recover gradually in the second half of last year. Judging from the industrial situation, the recovery continued in the first three quarters of this year. In the first half of 2017, the revenue of the company's medium and low voltage frequency converter business increased by 14.36% compared with the same period last year. We expect this trend to be maintained in the first three quarters, and the business will perform well for the whole year.

Profit forecast and investment advice. We estimate that the company's net profit from 2017 to 2019 will be 1.71,2.11 and 252 million yuan respectively, an increase of 10.19%, 23.34% and 19.53% over the same period last year, and diluted earnings per share of 0.82,1.01,1.21 yuan. Considering the valuation of the same industry, and the company's performance related to electric vehicles accounts for a relatively large proportion, it will be given 33 times PE in 2018, corresponding to the target price of 33.3 yuan per share.

Uncertainties. The development speed of new energy vehicle industry is not as fast as expected.