1~3Q17 performance meets expectations

Ketai Power announced 1~3Q17 results: revenue of 799 million yuan, an increase of 42.5% over the same period last year; net profit of 20.52 million yuan, an increase of 41.4% over the same period last year, in line with expectations. Gross profit margin fell 2.1ppt, due to higher engine import costs affected by exchange rates and increased competition; sales / management expense rates decreased 4.2/5.2ppt compared with the same period last year, due to the spin-off of Jetstar, a subsidiary with higher expense rates; and financial expense rates increased 1.4ppt due to increased exchange losses.

Trend of development

The sales of generator sets continued to grow at a high rate, and the gross profit margin was slightly under pressure. 1H17 generator unit sector revenue increased 39.4% to 471 million yuan, the growth trend continued in the third quarter. 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, gross profit margins have fallen due to increased competition and higher engine import costs affected by the exchange rate.

The operation project of electric logistics vehicle is progressing steadily. The company will raise no more than 813 million yuan, and will operate 11000 electric logistics vehicles and 5500 charging piles in 2017-19, and build an intelligent operation and management platform. Although the company's car purchase cost has risen after the subsidy has gone downhill, the leasing business is expected to advance steadily, with about 2000 vehicles planned for promotion in 2017, given the cost advantage of electric vehicles and the strong demand for electric replacement of logistics vehicles. 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 plans to invest 51.25 million yuan to take a stake in Jinghong Technology, a supplier of power battery packs and battery management systems for new energy vehicles. At present, Jinghong Technology has cooperated with Changan, Dongfeng and other household appliance animal car factories to develop powertrain products, which is expected to achieve mass sales this year. 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 keep our earnings per share forecast for 2017 / 2018 unchanged.

Valuation and suggestion

At present, the company's share price corresponds to the 2018 50x Pamp E. We maintain a neutral rating and a target price of 14.35 yuan, which is 2.58% lower than the current share price.

Risk

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