Huayu Automotive Alert:1H17profit a small miss on gross marg

日期:2019-09-30编辑作者:股票财经

6% profit growth on 12% revenue and 17% JV contribution YoY

13% YoY earnings growth with flat margin despite SG&A expense expansion

44% profit growth on strong demand from local brand customers。

    Huayu released 1H17results after market close on 24August. The company’s1H17gross revenue edged up by 11.5% YoY to RMB68.4bn, achieving 51% ofour FY17E revenue forecast. The revenue growth was likely driven by growthand new model launches from key OEM customers and good momentum onoverseas business, according to the company. Meanwhile, Huayu’s 1H17gross profit grew 12.7% YoY to RMB9.4bn with 15.2bps YoY gross profitmargin improvement. Together with 17.4% YoY growth in profit contributionfrom its JVs/associates, but partially offset by 16.5% YoY jump in SG&Aexpenses, 1H17net profit increased by 5.5% YoY to RMB3.2bn, achieving 45%of our FY17E profit estimate and 49% of consensus.

    3Q17gross revenue edged up by 12.1% YoY to RMB35.4bn. The revenue growthwas likely driven by production growth and new model launches from key OEMcustomers and good momentum on overseas business. Meanwhile, Huayu’s3Q17gross profit grew 12.4% YoY to RMB4.7bn with a mild 6bps YoY gross profitmargin expansion. Together with 10.3% YoY growth in profit contribution from itsJVs/associates, but partially offset by 18.8% YoY jump in SG&A expenses, 3Q17net profit increased by 12.9% YoY to RMB1.6bn. On a 9M17basis, Huayu’s netprofit of RMB4.8bn was up 7.8% YoY and accounted for 72% of our previousfull-year FY17earnings forecasts of RMB6.7bn (73% of Bloomberg consensus).Therefore, we consider the results in line with our expectation.

    Tuopu released its 1H17results after market close. The company’s 1H17grossrevenue edged up by 40.1% YoY to RMB2.3bn, achieving 46% of our originalFY17E revenue forecast. The revenue growth was mainly driven by strong ordersfrom local brands OEM customers, such as Geely, SAIC Roewe, and GACTrumpchi, according to the company. By product, revenue for shock absorber anddecorative parts increased by 20.0%/71.0% YoY to RMB1.0bn/1.1bn, respectively.1H17gross profit grew 34.4% YoY to RMB683.1m with 1.2ppt YoY grossprofit margin contraction mainly due to product mix deterioration with lesscontribution from shock absorber and intelligent braking segments. Gross marginfor shock absorber and decorative parts remained flat, improving 9/90bps YoY to35.0%/25.4%, respectively.。

    On a quarterly basis, 2Q17revenue increased by 24.5% YoY to RMB36.8bnand JVs/associates income grew by 33.9% YoY to RMB1.1bn. Offset by 24.5%YoY growth in SG&A expenses due to increasing overseas sales, 2Q17netprofit increased by 11.8% YoY to RMB1.8bn.

    Deutsche Bank view – favorable outlook intact with attractive valuation

    Together with a slower-than-revenue growth in SG&A expenses (+25.6% YoY)and 1.1x YoY jump in other income, 1H17net profit increased by 44.1% YoY toRMB387.0m, achieving 52% of our original FY17E profit estimate and 48% ofconsensus.。

    Deutsche Bank view – attractive valuation with expanding overseas sales

    We raise our FY17E revenue by 1.5% to reflect slightly better-than-expected 3Q17revenue growth. However, with lower margin assumptions, we adjust down ourFY17E earnings forecasts by 0.7%. For FY18-19E, we increase revenue forecast by9.0-9.3% and net profit by 0.6-2.1% to factor in the impact from recent acquisitionof the remaining 50% stake in Shanghai Koito auto lamp JV.

    On a quarterly basis, 2Q17revenue increased by 33.3% YoY (flattish QoQ) toRMB1.2bn. Gross margin deteriorated 1.8ppt YoY (27bps QoQ) to 29.1%. 2Q17net profit increased by 50.0% YoY (24.2% QoQ) to RMB214.4m.。

    We raise our FY17-19E revenue by 2.1-6.2% to reflect slightly better-thanexpected1H17revenue growth. However, with lower margin assumptions andJV earnings contribution, we adjust down our FY17-19E earnings forecasts by2.5-6.1%. Our TP is based on 10.5x FY18E P/E (unchanged), about 10% belowHuayu’s mid-cycle P/E of 12x. This is justified, in our view, as we expect Huayuto deliver a 12.0% FY16-19E three-year net profit CAGR. We think that theexpanding overseas sales of its interior trim subsidiary Yanfeng should providean additional growth driver. Maintain Buy on attractive FY18E P/E of 9.2x and5.8% dividend yield. Key downside risks: weaker auto sales; inability to acquirenew customers; and unexpected increase in raw material prices.

    Our TP is based on 12x FY18E P/E (from 10.5x, given the sector re-rating over thepast few months), in-line with Huayu’s mid-cycle P/E of 12x. This is justified aswe expect Huayu to deliver a 12.8% FY16-19E three-year net profit CAGR. Theexpanding overseas sales of interior trim subsidiary Yanfeng and acquisition ofauto lamp business should provide an additional growth driver. Maintain Buy onattractive FY18E P/E of 11.3x and 4.8% dividend yield. Key downside risks: weakerauto sales and unexpected increase in raw material prices.

    Deutsche Bank view – sales momentum to remain robust; Buy。

    We raise our FY17-19E revenue by 1.4-1.9% and FY17E net profit estimate by5.7% to reflect increase in government subsidy in 1H17, partly offset by weakergross margin. However, our FY18-19E earnings forecast is revised down by1.4-2.2% mainly due to more conservative gross margin assumptions. Our targetprice is set at a target 26x FY18E P/E (unchanged), on par with its mid-cycle P/E of 28x. This is justified, in our view, considering we expect the company todeliver a 23.5% three-year earnings CAGR in FY16-19E and reflects our optimisticview on the growth potential of Intelligent Braking System (IBS) and ElectricVacuum Pump (EVP) products. Key downside risks: weaker-than-expected autosales volume; failure to record new order awards for IBS/EVP products; any marketshare loss at Tuopu's key customers; and unexpected increase in raw materialprices.。

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