Results in the first half of 2018 are in line with expectations

Jiangsu Cathay Pacific announced its results for the first half of 2018: operating income was 16.622 billion yuan, up 2.9% over the same period last year; net profit attributed to the parent company was 433 million yuan, up 17.3% from the same period last year, corresponding to 0.28 yuan per share; net profit attributable to the parent company was 184 million yuan after deduction, down 47.3% from the same period last year. According to the company's forecast, due to the growth of the company's export business and the increase in investment income, the net profit of 1Q is expected to belong to the parent company of 658 million yuan and 837 million yuan, an increase of 10% and 40% over the same period last year.

Trend of development

The volume and price of electrolyte business fell in the first half of the year, waiting for capacity expansion to drive growth. According to Xinhuo data, the average price of 1H18 electrolyte industry fell 40 per cent compared with the same period last year. Huarong Chemical, a holding subsidiary, specializes in lithium battery electrolytes and silane coupling agents. 1H18 revenue fell 39 per cent year-on-year to 402 million yuan, while electrolyte sales declined. At present, Ningde 40,000 tons / year electrolyte project and Poland 40,000 tons / year electrolyte project are under way, of which the Polish project is expected to be completed and put into production in mid-2020. Capacity expansion is conducive to the growth of electrolyte business.

Speed up the development of new chemical materials and new energy business. The company established a wholly-owned subsidiary Ruitai New Energy in April 2017 to integrate internal resources as a development platform for new chemical materials and new energy business. Chaowei New Materials, a subsidiary of Ruitai New Energy Holdings, specializes in electronic chemicals such as capacitors and electrolytes, and 1H18 revenue increased by 96% to 46.28 million yuan compared with the same period last year.

Profit in the second half of the year is expected to improve month-on-month, promoting the textile and clothing supply chain service business. According to the company's forecast, the net profit attributable to 3Q18 is 225 million yuan, an increase of 10% to 98% over the previous month. The company actively promotes the textile and clothing supply chain service business and expects export growth in the second half of the year.

Profit forecast

Due to the increase in export business and investment income, we maintained the 2018e earnings per share forecast of 0.61 yuan unchanged, adjusted the 2019e earnings forecast unaffected, and lowered the 2019e earnings per share forecast by 44% from 0.74 yuan to 0.41 yuan. Of this total, the estimated net profit attributable to 2018e/2019e is RMB 957 million, with a year-on-year change of + 24% Universe 32% minus 2018eAccord 2019e and a year-on-year change of-28% Universe 19%.

Valuation and suggestion

The company's current share price corresponds to 9 times 2018 pm E, and the deduction corresponds to 18 pm 15 times 2018 pm E. We are optimistic about the future growth of chemical new energy and supply chain service business, and maintain the "recommended" rating. Due to the decline in electrolyte sales and the downward shift of the market valuation center, the target price will be lowered by 39% to 8 yuan, corresponding to 13 times 2018 Pamp E, corresponding to 19 times 2018 Pamp E, and after deducting non-deduction, there is a 40% space compared to the current stock price.

Risk.

The price of electrolyte fell sharply, the sales volume of electrolyte was weak, and the capacity expansion was not as expected.