Events:

Del shares released its annual report for 2017 and quarterly report for 2018: in 2017, the company realized operating income of 2.541 billion yuan, an increase of 308.1% over the same period last year, and realized net profit of 131 million yuan for shareholders of listed companies, an increase of 19.7% over the same period last year. After deducting Feifei, the net profit of shareholders of listed companies was 127 million yuan, an increase of 23.7% over the same period last year. In the first quarter of 2018, the company realized operating income of 838 million yuan, an increase of 366.7% over the same period last year, and realized a net profit of 45.56 million yuan for shareholders of listed companies, an increase of 51.4% over the same period last year, which was better than the advance forecast. The net profit of shareholders belonging to listed companies after deduction was 43.94 million yuan, an increase of 45.6% over the same period last year.

Main points of investment:

The company's operating income in 2017 was 2.541 billion yuan, an increase of 308.1 percent over the same period last year, and the net profit of shareholders belonging to listed companies was 131 million yuan, an increase of 19.7 percent over the same period last year. The growth mainly comes from the gradual release of new products such as gearbox pumps and electro-hydraulic pumps. the company's products can now be widely used in steering, transmission, braking, automotive electronics, body-assisted driving systems, and the implementation of the new project. it broadens the scope of application of the company's products in the whole vehicle, opens a new market space, and enables the company to gradually reduce its dependence on the original main products. In addition, the merger and acquisition of CCI was completed during the reporting period, contributing to another increase in sales revenue. During the reporting period, the company's gross profit margin on sales was 30.5% (year-on-year-8.0pct), and the three expense rates totaled 23.6% (year-on-year + 5.3pct). Gross profit margin decreased significantly compared with the same period last year, mainly due to the amortization of CCI sound insulation noise reduction business and lower overall gross profit margin. The management expense rate increased by 3.5% year-on-year, due to the increase in the company's wages, benefits and rental fees caused by the merger of CCI, as well as the related costs arising from the implementation of equity incentives, while the financial expense rate increased by 4.0% year-on-year, due to the increase in financing costs and exchange gains and losses of the company's acquisition.

The first-quarter results were better than the previous forecast. In the single quarter of Q1 2018, the company achieved operating income of 838 million yuan, an increase of 366.7% over the same period last year. The net profit of shareholders belonging to listed companies was 45.56 million yuan, an increase of 51.4% over the same period last year and 13.8% over the previous year. The gross profit margin on sales is 30.8% (year-on-year-8.3pct), and the total expense rate of the three items is 23.2% (year-on-year + 6.3pct). The growth rate of the performance in the first quarter compared with the same quarter was much higher than that of the automotive industry as a whole, the main reason for the increase in performance was that the company's business of raising and investing in new products, electro-hydraulic pumps, automatic gearbox pumps and automotive electronics, grew faster and realized economic benefits higher than that of the same period last year, while the economic benefits of CCI sound insulation and noise reduction products merged since May 2017 remained stable. As the gross profit margin of CCI sound insulation and noise reduction products is generally lower than that of the company's traditional products, the gross profit margin decreased in the first quarter compared with the same period last year, and the increase in expense rate is also due to business consolidation. The company's application for convertible bonds has been approved by the CSRC, and there will be a significant improvement in financial expenses for the whole year. As the new models of some of the company's products are still in the climbing period, the profit achieved in the first quarter is the lowest for the whole year, and the growth is improving for the whole year.

With the transformation of integrated parts suppliers and the continuous expansion of the product line and the acquisition of CCI, the company has realized the transformation from a supplier focused on turning to a system to an integrated supplier of auto parts. At present, the company's products include pumps, electric pumps, motors, automotive electronics, sound insulation and noise reduction, etc., which can be widely used in steering, transmission, braking, automotive electronics, body-assisted driving systems. Among them, CCI, as a world-class supplier of automobile sound insulation and noise reduction products, has strong advantages in the research and development of new materials and supporting customers including Mercedes-Benz, BMW, Audi, Ford, Volkswagen and other first-class automobile companies, which will contribute important achievements to the company in the future. In terms of the company's long-term reserve products, pumps, electric pumps, motors and automotive electronics have successfully completed research and development and obtained customer batch production plans, and many of these products have been tried to supply in bulk.

Profit forecast and investment rating: maintain the buy rating. It is estimated that the company's EPS in 2018, 2019, and 2020 will be 2.57, 3.46, 4.12 yuan, respectively, and the corresponding share price PE will be 16-12-10 times, maintaining the buy rating.

Risk hints: the risk that the expansion of new products is less than expected; the risk that sales in the automobile market fall short of expectations; the risk that the performance of the acquisition target is not as expected; and the risk that the construction of fund-raising projects is not as expected.