The company's revenue increased by 28.4% to 34.55 billion yuan compared with the same period last year, and the net profit attributable to shareholders increased by 6.3% to 1.25 billion yuan compared with the same period last year. The income is in line with expectations and the net profit is lower than our expectations of 6% (1.326 billion). The board of directors recommended a final cash dividend of HK $0.38 and expected a dividend payout rate of 31% for the 18 fiscal year.
Gross profit margin and sales expenses were the main factors for lower-than-expected performance: the gross profit margin on sales of batteries and related components fell 0.22 percentage points year-on-year to 12.8%; the comprehensive gross profit margin fell 1.2 percentage points to 11.8% year-on-year, mainly due to the trade in new energy materials with low gross margin; sales expenses increased by 31.8% to 890 million yuan, mainly due to the increase in transportation costs. Administrative expenses increased by 25.7% to 560 million yuan, mainly due to an increase in staff expenses and consulting costs, while financing costs increased by 16.2% to 178 million yuan, mainly due to an increase in the scale of borrowing.
The traditional business continues to grow, and the new business is gaining momentum: in the traditional business, the sales revenue of electric bicycles and electric tricycles is about 26.29 billion yuan, an increase of 21.1% over the same period last year; and that of mini electric vehicles is 2.01 billion yuan, an increase of 35.8% over the same period last year. The terminal demand of lead-acid power battery has maintained steady growth, the company's production capacity layout has been continuously optimized, sales channels have spread all over the country, and the competitive advantage is obvious. The new business includes lithium battery and lead recycling business, lithium battery business reserves high-end technology, layout and sales network; lead recycling, the maximum capacity of waste batteries can reach 700000 tons.
Lower the target price to HK$10.30 and maintain the "buy" rating
The company guides that the revenue from the trade of new energy materials is expected to grow rapidly from 2019, but the gross profit margin is low (less than 1%). The main purpose of this business is to effectively reduce the purchasing cost of lead, the raw material. As a result, the revenue forecast for 2019-2020 has been raised by 17.4%, 22.9% to 439.6, 50.4 billion yuan (previously 374.3, 41.01 billion yuan). The strict enforcement of the new international of electric bicycles will have a negative impact on the sales of large-size lead batteries, which in turn will affect the comprehensive gross profit margin (the gross profit margin of large-size batteries is higher). Therefore, the net profit forecast for 2019-2020 is 7.9%, 8.3% to 14.05 yuan, 1.604 billion yuan (previously 15.3 yuan, 1.75 billion yuan); the new 2021 income and net profit forecast are 575.0 yuan and 1.826 billion yuan respectively; and the net profit for 2019-2021 is CAGR13.4%. The company's market leader in electric bicycles, tricycles and mini electric vehicles is stable, the utilization rate of lead recovery capacity has improved steadily, and lithium batteries have developed steadily. Based on the absolute valuation, the target price was lowered to HK $10.30, maintaining the "buy" rating. The current valuation is 5.0x2019 per annum, with a dividend yield of 5.4 per cent.
Risk hint: lead-acid battery price war restarts, emerging business development is not as expected.