Jiangling's third-quarter results were lower than expected.

Jiangling announced its results for the first three quarters: operating income was 22.435 billion yuan, up 30.21% from the same period last year; net profit attributed to the parent company was 644 million yuan, down 41.15% from the same period last year, corresponding to earnings per share of 0.75 yuan. The company's performance in the first three quarters fell short of market expectations.

Trend of development

The downside of the product structure is a drag on 3Q17's performance. The company's 3Q17 revenue was 6.77 billion yuan, up 5.5% from the same period last year, down 9.9% from the previous month. The net profit is 91 million yuan, down 76.7% from the same period last year and 72.1% from the previous month. We believe that the main reason for the decline is that the company's 3Q product structure continues to decline. In particular, the previous cash bull model Ford Quanshun, 3Q sales year-on-year / month-on-month decline of 27%, 36%, the company's passenger car sales decline more, the main sales still rely on Jiangling light truck and pickup division. The company's newly launched Jiangling brand Qingke Teshun has sold more than 20,000 units in the first three quarters, and 3Q sales have declined slightly from the previous month, but they are close to the company's Quanshun sales. The company's 3Q17 gross profit margin was 20.1%, year-on-year / month-on-month decline 4.1ppt/1.2ppt, homing net profit rate of 1.3%, year-on-year / month-on-month decline of 4.7ppt/3ppt, both the lowest level in recent years, bicycle ASP and net profit also showed a significant decline.

The balance sheet is sound and net cash remains high. At present, the company's asset quality still maintains a healthy level, and the asset-liability ratio is effectively controlled at 47.1%. At the same time, the company's net cash is very abundant, and the balance at the end of the 3Q period reaches 9.26 billion yuan. After deducting the current price, the current price corresponds to 0.47x2018e Pmax B. The operation of the company is still relatively sound, but at present, the company still has more than 1 billion yuan under construction, which is expected to increase the depreciation pressure of the company after consolidation.

The sales of those who win and shake the road are not as expected, waiting for the B2C products to break the situation. At present, the company still has no outstanding performance in the development of B2C products, and the 3Q sales of Yusheng and roadshakers are all down more than 40% compared with the same period last year. The company Yusheng plug-in SUV will be pre-sold in November, waiting for the new products to help the company's B2C products to break the situation.

Profit forecast

Taking into account the lower-than-expected sales of the company and the fact that profitability is affected by changes in product structure, we cut our earnings per share forecasts for 2017 and 2018 by 30 per cent and 36 per cent from Rmb1.49 and Rmb1.91 respectively to Rmb1.05 and Rmb1.21, respectively.

Valuation and suggestion

At present, the company's share price corresponds to 1.4x 2018e P hand B. We maintain the neutral rating of Aswab B shares and the target price of RMB20.00 / HK $20.00, which is 2.39% downside from the current share price.

Risk

Competition in the industry intensifies and sales remain depressed.