2017 and 1Q18 performance were lower than expected

Aotejia reported 2017 and 1Q18 results: 2017 revenue of 5.183 billion, down 0.87% from the same period last year; and net profit of 367 million, down 17.73% from the same period last year, corresponding to 0.12 yuan per share. 1Q18 revenue was 1.05 billion, down 24.07% from the same period last year; net profit from home was 86 million, down 7.11% from the same period last year, corresponding to earnings per share of 0.027 yuan; and non-net profit was deducted from 32 million, down 63.46% from the same period last year. The results were lower than expected due to a significant decline in gross profit margin. The company expects 1H18 homing net profit to range from 180 million to 270 million, with year-on-year growth of-2.47 to 46.3 per cent.

Trend of development

The gross profit margin is down and the increase in fees is a drag on performance. As aluminum prices continued to rise, the slowdown in the mid-and low-end autonomous car market led to a decline in the company's capacity utilization, as well as the suspension of some of GM's major models in North America, 1Q18 gross margin fell 7.1ppt to 16.8% month-on-month. In terms of expenses, the company's 4Q17/1Q18 management expense rate was increased to 9.7% to 9.4%, and the sales expense rate was increased by 2/0.1ppt to 5.4% to 4.1%. Affected by the increase in exchange losses, the financial cost of 1Q18 was 20.29 million yuan, an increase of 138% over the same period last year. At the same time, 1Q18 confirmed a profit and loss of 57.72 million yuan on asset disposal to compensate for the demolition of Nanjing Autejia.

The market share of electric compressors continues to increase. The company resumed supplying BAIC and BYD in April this year, and the market share of electric compressors increased compared with the same period last year, and the leading position of new energy compressors is still stable; but since 17 years, affected by the decline of subsidies for new energy vehicles, the profits of the upstream parts industry of new energy vehicles have been squeezed, and the profitability of electric compressors has declined.

The aftermarket and externally controlled variable displacement compressors are expected to become new growth points. In 2017, the company sold 539000 compressors in the domestic aftermarket, an increase of 18% over the same period last year. The domestic after-sales market has more than 5 million units, and the space is vast; at the same time, the company actively optimizes the product structure. In 2017, the sales of externally controlled variable displacement compressors were 1.6 million, an increase of 35% over the same period last year. Under the background of consumption upgrading, externally controlled variable displacement compressors are expected to become a new growth point.

Profit forecast

Due to the lower-than-expected performance, we lowered our 2018e profit forecast by 24.3 per cent from 508 million to 384 million (including 1H18 demolition subsidies) and introduced a 2019e profit forecast of 391 million.

Valuation and suggestion

At present, the company's share price corresponds to 18gamble 19-year 29.6x/29.1x Pincus E. Maintain its neutral rating, lowering its target price by 6.7 per cent from 4.50 yuan to 4.20 yuan, corresponding to the 19-year 18-34.2x/33.7x 34.2x/33.7x E, which is 15.7 per cent higher than the current share price.

Risk

The progress of capacity expansion is lower than expected; customer development is lower than expected.