The company released its quarterly report for 2017, showing a profit of 215 million yuan in the first three quarters, an increase of 86.46 percent over the same period last year, and a forecast profit of 270 to 354 million yuan, an increase of 60 percent and 110 percent over the same period last year, in line with expectations. We believe that there is a large expectation gap in the company's power battery business, maintain the buy rating, and raise the target price to 38.00 yuan.
Support the main points of rating
The results of the three quarters are close to the upper limit of the forecast range, which predicts that the company will maintain high growth for the whole year: in the first three quarters, the company achieved revenue of 3.714 billion yuan, a year-on-year increase of 127.68%, and a net profit of 215 million yuan, an increase of 86.46% over the same period last year, corresponding to earnings per share of 0.54 yuan. Of this total, the net profit returned to the mother in the third quarter was 92 million yuan, an increase of 89.71% over the same period last year and 12.59% higher than the previous quarter. Prior to this, the company forecast a profit of 1.73-230 million yuan in the first three quarters, and the results in the three quarters were close to the upper limit of the range. The company also forecast a full-year profit of 270-354 million yuan, an increase of 60 percent over the same period last year. The company's quarterly results and annual results forecast are in line with expectations.
Power battery volume, significantly thickened performance: according to the data of China Chemical and physical Power Industry Association, Zhihang New Energy, a subsidiary of the company, ranked fourth in electric vehicle battery installation in September, and Zhihang New Energy made a net profit of 96.03 million yuan in the first half of the year. It is expected to achieve a cumulative net profit of about 200 million yuan in the first three quarters, contributing about 100 million yuan to listed companies. Zhihang New Energy currently has a production capacity of 10,000 tons of cathode materials, a daily production capacity of 1 million 18650 lithium battery cells (about 3.5GWh) and a complete production line of PACK system. We expect that Zhihang New Energy will meet its performance commitments in a large proportion throughout the year, and its equity ratio of listed companies is expected to further increase.
The large increase of the company's middle and senior management staff shows confidence: the company's middle and senior management staff increased their holdings by 1.015 billion yuan in late September 2017, demonstrating their firm confidence in the future development of the company.
Main risks faced by rating
The new energy vehicle policy falls short of expectations; the power battery business falls short of expectations.
Valuation
Under the assumption that the remaining equity of Zhihang New Energy will be injected into the listed company in 2018, regardless of diluted equity, we expect the company to earn RMB 0.82,1.45,1.61 per share respectively from 2017 to 2019, with a price-to-earnings ratio of 36.4,20.7x and 18.7x respectively.