Introduction to this report:
The main business is growing steadily, the new business has been targeted by overseas giant customer projects, the company is expected to make up prices by volume, and the decline in gross profit is expected to stabilize.
Key points of investment:
Maintain the increase in holdings. The company released its three-quarter report. From January to September 2018, revenue was 1,137 billion yuan, an increase of 12% over the previous year, and the net profit of the mother was 124 million yuan, an increase of 8.6% over the previous year, in line with market expectations. Considering that the new business will require gradual volume expansion over 19 years, the 2018-20 eps was lowered to 0.57 (-0.11) /0.77 (-0.13) /1.01 (-0.16) yuan. Referring to the industry valuation, 15 times PE in '19 was given, and the target price was lowered to 11.49 yuan to maintain the increase in holdings.
The main business grew steadily by around 10%, and the new business continued to grow at a high rate. The performance was in line with expectations. The main business continued the steady growth of the interim report in the first three quarters, reporting revenue of 530 million yuan, up 11% year on year, accounting for 71% of revenue; high strength elastic parts revenue was 0.9 million yuan, accounting for 12%, a slight increase of 2% over the previous year; the new business continued to report high growth in the third quarter. The new business was mainly two pieces of A. automotive electronic control components and lightweight parts, and b. Multi-layer insulated wires, accounting for 5%. The new business reported revenue of 38 million yuan, an increase of 89% over the previous year. b Achieved revenue of $37 million, an increase of 38% over the previous year.
As new businesses continue to receive targeted mass production from overseas giants, the company is expected to make up prices with volume, and the decline in gross profit is expected to stabilize. The gross profit margin of the 2018 mid-year report was 27.6%, down 1.8 pct from the previous year, mainly due to the decline in gross margin of overseas business. The gross profit margin for the first three quarters of 2018 was 25.4%, a year-on-year decline of 4.1 pct. The leading customer advantages of Bosch, Nippon Denso, Johnson Electric, and Daimler guarantee the steady supply and growth of the company's main business. Currently, many new business products are being developed in cooperation with customers such as Daimler and BYD, and will be mass-produced in the next 1-2 years. A total of more than a dozen world-renowned customers have been selected for a number of projects, and a number of projects are preparing to enter the mass production stage one after another.
Catalysts: mass production and supply for new businesses
Risk warning: There is a risk that new business market expansion will fail, and there is a risk that gross margin will continue to decline.