Aspects that are inconsistent with the forecast
New Shida reported revenue / net profit of 957 million / 61 million yuan in the third quarter of 2017 (up 14% / down 11%), and 2.58 billion / 160 million yuan in the first nine months of this year (up 38% in the first nine months of this year). Equivalent to our previous forecast for the whole of 2017, 72%. 77%. Key points: 1) the elevator business was the revenue driver in the third quarter, contributing 36% to total sales. As a result of the company's acquisition of Zhishan Intelligent Control in the third quarter, sales of the robot and motion control business reached 1.7 billion yuan (58 per cent of sales in that quarter), while elevator revenue was 680 million yuan (36 per cent). The implied revenue from the robot business in the third quarter of this year is only 557 million yuan, which is 22% of our forecast for the whole of 2017, which is lower than expected.
2) although the tilt of the product structure towards the high-margin elevator business should be conducive to an increase in comprehensive profit margins, gross profit margin in the third quarter still fell 2 percentage points year-on-year to 23.5% (unchanged from the previous month), in line with our full-year forecast of 23.4%. The comparable gross profit margin of the product (elevator) has decreased. 3) the profit margin before interest and tax decreased by 3 percentage points compared with the same period last year and month-on-month, due to the fact that the company paid more attention to the robot business, which led to a rise in the sales expense rate to 16.2% (1 / 4% year-on-year / month-on-month increase). 4) the drag on the decline in net profit is the financial cost of RMB 15 million, which is attributed to new mergers and acquisitions and debt financing to supplement working capital.
Investment impact
We lowered our earnings per share forecast for 2017-19 by 1-6 per cent to reflect the fact that R & D spending was slightly lower than expected and completely offset by higher financial costs (assuming additional financing of about RMB 1.4 billion). On this basis, and after extending the valuation of EV/GCI vs. CROCI/WACC from 2017 to 2018, we lowered our 12-month target price by 5% (still based on the industry cash return multiple of 3.1 times and applying a 20% discount). Risks include better-than-expected robot business integration and improved profit margins.
