The company released its quarterly report for 2017, with operating income of 443 million yuan in the first three quarters, an increase of 2.54% over the same period last year, and net profit of 107 million yuan, an increase of 0.94% over the same period last year, corresponding to earnings per share of 0.51 yuan, in line with expectations. We believe that the company's logistics vehicle electronic control products have a good customer structure and are expected to benefit from downstream logistics vehicle demand; for the first time, coverage is given a cautious buying rating, with a target price of 33.00 yuan.

Support the main points of rating

The performance in the first three quarters increased slightly in line with expectations: the company achieved revenue of 443 million yuan in the first three quarters, an increase of 2.54%, and a net profit of 107 million yuan, an increase of 0.94%, corresponding to earnings per share of 0.51 yuan. Of this total, revenue in the third quarter reached 149 million yuan, down 14.92 percent from the same period last year and 7.07 percent from the previous quarter; the net profit returned to the mother was 36.11 million yuan, down 5.78 percent from the same period last year, and 0.43 percent from the previous quarter, corresponding to earnings per share of 0.17 yuan. The company's performance is basically in line with our and market expectations.

Price reduction of electronic control products depresses gross profit margin: this year, downstream vehicle manufacturers are affected by subsidies and have a strong demand to reduce procurement costs, which has put a considerable degree of pressure on the supply prices of the three power suppliers. Affected by product price cuts, the company's sales gross profit margin in the first three quarters was 39.27%, down 4.82 percentage points from the same period last year, and also declined compared with the level of 40.34% reported in the middle of the year, continuing the downward trend during the year.

Logistics vehicles begin to sell, and the company is expected to benefit: according to Gao Gong Industry and Research data, China's new energy logistics vehicles produced about 42800 new energy logistics vehicles in the first three quarters, an increase of 395 percent over the same period last year, of which about 31400 were produced in the third quarter. In the field of new energy logistics vehicles, the company has established a good supply relationship with Dongfeng Special Automobile, FAW, Dayun and other vehicle factories, and the electronic control products of logistics vehicles account for about half of the total shipments. the company's performance is expected to significantly benefit from the improvement of the logistics vehicle market.

Main risks faced by rating

The price of electronic control products fell more than expected; the downstream demand of logistics vehicles was lower than expected.

Valuation

We estimate that the company's earnings per share from 2017 to 2019 will be 0.81,1.04,1.27, respectively, and the corresponding price-to-earnings ratio will be 35.0,27.1,22.3 times, respectively.