Main points of investment
The performance is lower than expected, and the prospect of transformation and development is good. In the first three quarters of 2018, the company achieved revenue of 1.11 billion yuan (year-on-year-2.75%), net profit of 130 million yuan (year-on-year + 0.15%) and EPS 0.12 yuan. During the reporting period, the company's income declined slightly, asset impairment losses and year-on-year increases in non-operating expenses partially offset the contribution of a sharp decline in management expenses to performance, while return-to-home net profit increased slightly. The company will accelerate the transformation to the new energy vehicle and military special equipment industry. In the future, with the gradual contraction of the set-top box business, the expansion of the military business scale and the enhancement of the competitiveness of the new energy vehicle business, the performance is expected to stabilize and pick up.
Intelligent mechanical and electrical business: benefit from the needs of new project construction and equipment upgrading. With the deepening of our army's mechanization and information construction, the upgrading of ground weapons and equipment is accelerated, and the company is expected to fully benefit. While expanding the category of intelligent mechanical and electrical products, the company further promotes the construction of an integrated mechanical and electrical management system, upgrading in the direction of information, intelligence and automation. with the promotion of fund-raising project construction, intelligent mechanical and electrical business is expected to continue to grow rapidly.
New energy auto parts business: further massive investment to accelerate development. According to the China Automobile Association, the production and sales of new energy vehicles completed 735000 and 721000 respectively from January to September 2018, an increase of 73.0% and 81.1% respectively over the same period last year. While strengthening the performance and cost control of electric scroll compressors, intelligent charging piles, precision sheet metal and other products, the company continues to cultivate, introduce and develop other parts business, build a complete ecological chain, and actively open up mainframe factory customers. the charging and power business will be developed to vehicle and module products, and the competitiveness of new energy vehicle business is expected to be further enhanced in the future.
Set-top box business: continuous optimization and integration. Affected by the rise in the price of upstream raw materials, the set-top box business may still be a drag on the company's performance. By controlling the scale of the loss-making business and improving the management level, the company is expected to curb the loss momentum of the set-top box business. In the future, the company will gradually focus its development on new energy electric vehicles and military equipment industry, expand the business scale of the two emerging sectors, and promote business development and transformation.
Risk factors. The performance of the digital set-top box market has declined; military orders have declined; and the prosperity of the new energy vehicle industry has fallen short of expectations.
Profit forecast, valuation and investment rating. Taking into account the drag on the company's set-top box business, the impact of the new policy on new energy vehicle subsidies on the company's spare parts business, and the increase in impairment losses on the company's assets, we downgrade the company's EPS forecast for 2018-19-20 to 0.18 shock 0.21 shock 0.25 yuan (the original forecast is 0.20 shock 0.24 shock 0.29 respectively). The current price is 3.38RMB, corresponding to the PE of 2018-19-20 is twice that of 19-16-14 respectively. Taking into account the industry development opportunities faced by the company's military business and the competitiveness of the new energy vehicle business is expected to continue to improve, maintain the "buy" rating, the target price of 4 yuan.
