This report is read as follows:
The company's results in the first three quarters of 2019 were slightly lower than expected, as rising costs depressed the company's gross profit margin. Bead wire industry long-term competition pattern is good, the company's industry position is stable.
Main points of investment:
Maintain the "overweight" rating. The company achieved revenue of 2.001 billion yuan in the first three quarters of 2019, up 11.78% from the same period last year, and its net profit was 137 million yuan, down 19.37% from the same period last year, and the company's performance was slightly lower than expected. The company has a revenue of 677 million per quarter in the third quarter and a net profit of 16 million. Taking into account the rising cost of the company, the company reduced its EPS from 2019-2021 to 0.64max 0.65 plus 0.69 yuan (formerly 0.87 plus 1.00 plus 1.09 yuan). Reference to similar companies, give the company 2019 PE 19 times, under the company target price of 12.16 yuan (the original 14.83 yuan), maintain the "overweight" rating.
Production costs go up and gross profit margins go down. In the first three quarters of 2019, the company's gross sales margin was 13.51%, down 1.66 percentage points from the first half of 2019, and the net sales margin was 6.84%, down 2.32 percentage points from the first half of 2019. The gross profit margin of single-quarter sales in the third quarter of 2019 was 10.27%, down 6.2 percentage points from the second quarter. On the whole, the rise in operating costs suppresses the company's gross profit margin obviously. We expect the company's gross profit margin to pick up in the fourth quarter as the price of upstream raw materials stabilizes.
The asset-liability ratio was stable and the expense rate decreased month-on-month during the period. In the first three quarters of 2019, the company's asset-liability ratio was 57.23%, down 0.53 percentage points from the first half of 2019. In the third quarter of 2019, the company's expense rate (including R & D) was 7.07%, which was 0.83% lower than that of 2019Q2, and the company's expense rate remained low.
The industry pattern is good, and the company's competitive advantage has improved steadily. The company is the leader of China's bead wire industry and participates in the formulation of industry standards. The domestic market share of bead wire products is maintained at about 30%. It is the largest bead wire manufacturer in China and has a solid position in the industry. With the gradual release of the company's production capacity, the company's competitive advantage will be steadily improved, and the company has great potential for long-term development.
Risk hint: the company's capacity release is not as expected and tire production has fallen sharply.