Events:

According to Zhongtai Automobile's three quarterly reports in 2018, the company achieved an operating income of 13.365 billion yuan, an increase of 15.26% over the same period last year, and a net profit of 415 million yuan, down 13.55% from the same period last year.

Among them, three quarters reported that the company realized operating income of 3.114 billion yuan, down 46.38% from the same period last year, and realized a net profit of 111 million yuan, an increase of 57.08% over the same period last year.

Comments:

1. The industry cycle has declined, independent brands have been frustrated, and the company's car sales have declined significantly in the third quarter. Car sales increased by 1.49% in the first nine months of 2018, which was high before and low after the growth rate. After June, the growth rate of car sales declined significantly, consumers' willingness to buy cars decreased significantly, and competition in the industry intensified. Independent brand models under 100000 yuan were more obviously hit. The market share of independent brands was 39.14% in September, down 2.1% from the same period last year. According to the China Automobile Association, the company sold 199300 vehicles in the first nine months, up 8.3% from a year earlier, and sold 44000 vehicles in the third quarter, down 41.83% from a year earlier.

2. Gross profit margin and inventory have declined steadily, the proportion of accounts receivable and bills has increased, and the company has accelerated destocking. The company's third-quarter gross profit margin was 17.82%, down 0.47% from the same period last year. At the same time, accounts receivable and bills receivable accounted for 22.1% of total assets, up 4.99% over the same period last year, while inventory accounted for 8.88% of total assets, down 2.11% from the same period last year.

3. The rate of management expenses (including R & D expenses) and sales expenses increases, and the profit growth rate is lower than the revenue growth rate. In the first three quarters of 2018, the sales expense rate was 4.67%, the management expense rate was 3.51%, the R & D expense rate was 2%, and the financial expense rate was 0.68%, totaling 13.92%, an increase of 0.73% over the same period last year.

4. It is estimated that the EPS from 2018 to 2020 is 0.52,0.57,0.61 yuan respectively, and the corresponding PE is 8.4x, 7.6x and 7.2x respectively.

Risk hint: sales of new models are lower than expected; progress with Ford is slow.