The 3Q19 performance is in line with our expectations
The company announced 3Q19 results: revenue of 1.93 billion yuan, down 7.0% from the previous year; Guimu's net loss was 8832 million yuan, down 126.1% year on year; net loss of 42.942 million yuan after deduction, down 281.4% year on year, in line with expectations.
Development trends
The decline in the new energy industry is beneficial to an increase in gross margin. The company's gross profit margin in a single quarter was 18.9%, up 1.7 ppt over the previous year and 3.6 ppt over the previous month. Although the company has been expanding its business by developing new energy vehicle drive motors for a long time, the gross margin level has not improved. The 2019 Interim Report revealed that the gross margin level of this sector was only 9.03%. The new energy market experienced large-scale negative growth for the first time in the third quarter. We expect the decline in the sector's revenue share to contribute positively to overall gross margin.
Cash flow from operating activities fluctuates greatly between quarters, and operating capacity needs to be improved. The company's net profit for the second quarter was 290 million yuan, and the operating cash flow was -170 million yuan, due to a decline in cash received from sales; the third quarter's net loss of 8.832 million yuan and operating cash flow was -310 million yuan, due to a sharp decrease in discounting of notes receivable; there was high interquarter volatility, and the difference in net profit with Gumo was large, and the company needed to be strengthened by matching upstream and downstream accounts.
Divest assets in exchange for living space. The company transferred 50% of Petron Drive's shares in the second quarter and disposed of the vacant Houston Taiyo Electric plant in the third quarter, receiving a total of about 250 million yuan in investment income and 50 million yuan in asset disposal income. At a time when the automotive industry is facing downward pressure, and commercialization of hydrogen fuel cell technology as the company's other development direction is progressing slowly, divesting non-core assets in exchange for survival chips is an issue that most companies need to face.
Profit forecasting and valuation
The current stock price corresponds to the price-earnings ratio of 23.4 times/36.2 times in 2019/2020. Maintaining a neutral rating and a target price of 3.10 yuan corresponds to 18.7 times the 2019 price-earnings ratio and 29.0 times the 2020 price-earnings ratio. There is 19.9% room for decline from the current stock price.
risks
Implementation of hydrogen energy technology has been slow.