Wolong Electric Drive (600580): Improved profit quality, main business continued to grow, non-thickened profit 1H19 performance in line with expectations

Performance review Maintaining outperforming industry 1H19 results in line with our expectations of the company’s 1H19 results: revenue of 60.

10,000 yuan, an increase of 11 in ten years.

6%; net profit attributable to mother 6.

10,000 yuan, an increase of 120 in ten years.

1%, net of non-attribution to mother 3.

48 ppm, an increase of 29 in ten years.

3%, performance was in line with expectations.

  Increased gross profit margins significantly improved cash flow and improved earnings quality.

1H19 gross margin increased short-term2.

6ppt, we think it is mainly driven by the optimization of product structure in various aspects.

Net cash flow from operations was 4.

37 ppm, an increase of 21 per year.

8%, cash flow has continued to improve since 2018.

Deduct non-net interest rate up to 5.

8%, 0 per year.

8ppt.

The overall profit quality improved.

  The non-recurring gains and losses of Hongxiang shares significantly increased 1H19 performance, and the conversion of 2H to long-term equity investment will not bring about fair value loss gains and losses.

The company holds a total of 12 Hongxiang shares.

56% equity, due to changes in accounting standards, 1H19 contains Hongxiang shares12.

Some financial assets within 56% equity were reclassified as financial assets measured at fair value and included in the current profit and loss, bringing a total of 2.

54 trillion fair value gains and losses, increasing 1H19 results.

  The interim report disclosed that the holder’s equity of the Hongxiang shares has been converted from trading financial assets to long-term equity investment accounting, and this part of 2H19 will no longer bring changes in fair value gains and losses.

  Development Trends EV motors have entered the ZF Motors supply chain, benefiting the mid- and long-term development of new energy vehicles.

ZF’s main customers BMW, Volkswagen, and Mercedes-Benz have all accelerated their electrification.

We believe that through cooperation with ZF, it can enter the motor supply system of its downstream first-tier car companies, establish a good brand reputation, enter more domestic mainstream car companies’ supply systems, and benefit from the mid-to-long-term rapid development 苏州夜网论坛 of new energy vehicles worldwide.

  Global distribution of production capacity and the risk of scale trade friction.

The company has 14 manufacturing bases overseas, located in Europe, America and Southeast Asia.

It can effectively realize global supply and potential risks brought by large-scale trade friction.

  Earnings forecasts and estimates We maintain 19 / 20e 10.

4/9.

2.7 billion net profit.

It currently corresponds to November 2019/2020.

2 times / 12.

5 times price-earnings ratio.

  Maintain Outperform rating and 11.

Target price of 50 yuan, corresponding to 14.

3 times 2019 P / E ratio and 16.0 times 2020 price-earnings ratio, compared with the recent inclusion of 28.

1% upside.

  Risks Lower-end capital expenditures of high-voltage motors were lower than expected, and actual demand for EV motor customers was lower than expected.