3Q20 performance is in line with our expectations
The company's 1-3Q20 income was 3.07 billion yuan, down 18.6%, and the net profit returned to the mother was 24.9 million yuan, down 63.8%, of which 3Q20 income was 1.24 billion yuan, down 5.2%, and the net profit returned to the mother was 30.71 million yuan, an increase of 97.3%. 3Q20's performance is in line with our expectations.
Trend of development
With the recovery of the car market and the overall economy, business has further improved month-on-month. On the market side, wholesale passenger car sales 3Q20 became regular for the first time this year, an increase of 8 per cent, according to data from the Federation of passengers. The company's 3Q20 4S store business increased slightly compared with the same period last year, resuming the growth trend. The charging and body advertising business has also returned to levels close to the same period last year.
The cost control is strengthened, and the month-on-month increase in taxes and fees affects profit performance. The company's expense rate during the 3Q20 period was 10%, which was down 3ppt from the same period last year and remained stable on a month-on-month basis. Since 2Q20, the company has significantly strengthened cost control. Revenue recovered, expenses decreased, the company's 3Q20 EBIT reached 80 million yuan, an increase of 21%, and operating profit reached 70 million yuan, an increase of 53% and 55% over the previous month. Affected by taxes and fees of 27 million yuan, the company's 3Q20 profit performance is inferior to that of 2Q20.
We are optimistic that the company's business will continue to improve. We believe that since the beginning of this year, the company's main business has been greatly affected by the epidemic (the frequency of bus operation has declined, car market sales and vehicle advertising have been greatly affected, etc.), the overall 3Q20 market has ushered in an inflection point, and with the further recovery of the economy and people's livelihood in key areas where the company's business is located, we expect business to continue to improve month-on-month. Benefiting from the company's ongoing fee control and cost reduction measures, we believe that the performance is expected to be further released.
Profit forecast and valuation
We maintain the expected net profit of 104 million yuan and the target price of 4.5 yuan. The current share price and the target price correspond to 2020x2021e 28x Pmax E and 35max 27x Pmax E respectively, with 22.3% upside space, maintaining the industry rating of outperforming.
Risk.
The utilization rate of charging piles climbed less than expected, and car sales in 4S stores fell short of expectations.