Policies and regulations on energy conservation and emission reduction will force enterprises to increase the promotion of hybrid electric vehicles. The fourth stage fuel consumption limit standard issued by the Ministry of Industry and Information Technology requires that the average fuel consumption of passenger car manufacturers must be reduced from 6.9L/100km in 2015 to 5.0L/100km in 2020, and will further drop below 4.0L/100km in 2025. The retrogression of the subsidy policy for new energy vehicles will be implemented in 2017 (20% is expected), which will increase the costs of new energy vehicle manufacturers. Falling fuel consumption limits and rising costs will force car companies to produce more hybrid models equipped with CHS and 48V systems, and hybrid technology will usher in a good opportunity for development.
The launch of Geely Automobile's first own-brand hybrid model will lead the domestic hybrid system to take off. The CHS platform formed by the company's alliance with Geely, Changan and Yunnei is the first leading hybrid system provider in China. Geely Dihao EC7, the first self-brand hybrid model, will be launched with CHS on December 29th this year, or the prelude to the promotion and popularization of domestic hybrid vehicles. More hybrid models of Geely and Changan will be on the market one after another from 2017, and some allied passenger and commercial vehicle companies have signed the intention to purchase CHS system. The CHS system plans to produce 100000 units in 2017 and 300000 in 2019. If completed, it will bring a huge reversal to the company's revenue and profits.
The business related to the hybrid technology industry chain will take a turn for the better. The company's Ni-MH power battery production line is the first fully automatic production line in China. At present, domestic Ni-MH power batteries are mainly equipped with Toyota hybrid models. With the increase of domestic hybrid models in the future, the probability of matching for domestic vehicle enterprises is increasing, bringing new business increments to the company. Since the beginning of this year, the price of nickel, zinc and other non-ferrous metals has rebounded sharply, which will bring greater performance flexibility to the zinc trading plate and nickel mining business, which account for nearly half of the company's business.
Investment suggestion: our company forecasts earnings per share of-0.08, 0.01 and 0.03 yuan respectively from 2016 to 2018. The return on equity is-5.7%, 0.8% and 1.8% respectively, covering the buy-A recommendation for the first time, with a six-month target price of 13.30 yuan, equivalent to a market capitalization of 18.5 billion in 2017.
Risk hint: sales of matching hybrid models fell short of expectations; the price of battery raw materials rose sharply.
