2017 performance in line with expectations

Jiangling Motor announced its 2017 results: operating income was 31.35 billion yuan, up 17.7% over the same period last year; net profit attributed to the parent company was 690 million yuan, down 47.6% from the same period last year, corresponding to earnings per share of 0.8 yuan, which was in line with the company's previously announced results of KuaiBao.

Trend of development

With the intensification of market competition, the investment of promotion expenses is a drag on performance. In the past 17 years, Jiangling's sales expenses increased by 37.4% compared with the same period last year, and the expense rate increased by 1.24 percentage points to 8.6% compared with the same period last year. In response to the intensifying market competition environment, the company's promotion expenses increased nearly twofold. At the same time, cash discounts and other things reduced the gross profit margin by 2.5 percentage points to 19.1%, which became a major drag on performance.

The enterprise development support funds received by the company increased by 21% year-on-year to 630 million yuan, accounting for 83% of pre-tax profits, which has become a strong support for performance.

The product structure is declining and bicycle profits are declining. The company sold a total of 310000 cars of various types in 2017, an increase of 10.3 percent over the same period last year, but due to the weak passenger car market, competition among independent brands intensified. The company's 17-year sales of Yusheng's main SUV products were 29000, down 21.9 percent from the same period last year. At present, the company's main sales come from Jiangling Light truck and pickup Branch, the product structure continues to decline, and the net profit per bike has dropped to 2228.6 yuan, down 52.5% from the same period last year.

With sufficient cash on the account, the dividend payout rate is high, so subtract it and wait for it to pick up. The cash on the company's account reached 11.14 billion yuan, the interest-bearing liability was very low, the balance sheet structure was sound, and the asset-liability ratio was only 52.3% at the end of 17 years. The company maintains a high dividend rate of 40% all the year round and continues to protect the interests of shareholders. In the short term, the company's products and channels are still adjusted, and the cooperation model with Ford is expected to be further optimized. In the medium to long term, the company's advantages in the field of commercial vehicles will continue to be expanded through new products, and the company has also successfully passed the qualification audit for the production of new energy vehicles for plug-in hybrid passenger vehicles, which may bring new increments to the company's performance.

Wait for the light performance to recover after the transition of the company's adjustment period.

Profit forecast

Taking into account the higher-than-expected investment such as the company's promotion fees and the lower-than-expected sales volume of Yusheng, we lowered our 18-year profit forecast by 18% to 857 million yuan and gave a new 19-year forecast of 1.18 billion.

Valuation and suggestion

At present, the company's share price corresponds to 19.8x 2018e P Universe E. We maintain the neutral rating of A & B shares and the target price of RMB 20 for A shares. Due to the low liquidity and weak risk appetite of B shares, we cut the target price of B shares by 10% to HK $18, corresponding to 20.2x and 14.4x 2018e P and E, respectively.

Risk

Passenger car sales are lower than expected.