The company released its report for the third quarter of 2017. It made a profit of 215 million yuan in the first three quarters, an increase of 86.46% over the previous year, and predicted a profit of 270-354 million yuan for the whole year, an increase of 60%-110% over the previous year, in line with expectations. We believe that there is a big gap in expectations for the company's power battery business. The purchase rating was maintained, and the target price was raised to 38.00 yuan.
Key points to support ratings
The three-quarter report is close to the upper limit of the forecast range, and the forecast is that high growth will continue throughout the year: the company achieved revenue of 3.714 billion yuan in the first three quarters, a sharp increase of 127.68% over the previous year; the net profit returned to the mother was 215 million yuan, an increase of 86.46% over the previous year, corresponding to earnings per share of 0.54 yuan. Among them, the third quarter achieved net profit of 92 million yuan, an increase of 89.71% over the previous year and an increase of 12.59% over the previous month. Earlier, the company predicted a profit of 173-230 million yuan for the first three quarters, and the three-quarter report performance was close to the upper limit of the range. The company also predicted a profit of 270-354 million yuan for the whole year, an increase of 60%-110% over the previous year. The company's three-quarter results and full-year earnings forecast are in line with expectations.
The volume of power batteries increased significantly: According to data from the China Chemical and Physical Power Industry Association, the company's holding subsidiary Zhihang New Energy ranked 4th in the installed capacity of electric vehicle batteries in September; Zhihang New Energy achieved a net profit of 96.03 million yuan in the first half of the year, and is expected to achieve a cumulative net profit of about 200 million yuan in the first three quarters, contributing about 100 million yuan to the performance of listed companies. Zhihang New Energy currently has a production capacity of 10,000 tons of cathode materials, a production capacity of 1 million 18650 lithium battery cells per day (about 3.5 GWh), and a complete production line for the PACK system that goes with it. We expect a large percentage of Zhihang New Energy to deliver on its performance promises throughout the year, and at the same time, the shareholding ratio of listed companies is expected to increase further.
The large increase in holdings of the company's middle and senior management shows confidence: the company's middle and senior management increased their holdings by a total of 1,015 billion yuan in late September 2017, demonstrating their firm confidence in the company's future development.
The main risks faced by ratings
The NEV policy fell short of expectations; the power battery business fell short of expectations.
valuations
Under the assumption that Zhihang New Energy's remaining shares will be injected into listed companies within 2018, without considering diluted share capital, we expect the company's earnings per share in 2017-2019 to be 0.82 yuan, 1.45 yuan, and 1.61 yuan respectively. The price-earnings ratios corresponding to the current stock price were 36.4 times, 20.7 times, and 18.7 times respectively. Maintaining the purchase rating, the target price was raised from 35.00 yuan to 38.00 yuan, corresponding to the price-earnings ratio of 26 times in 2018.