Guoxuan High-tech (002074): Maintain a cautious view
We have updated the company’s profit forecast for 2019-2020.
Guoxuan Hi-Tech’s 2018 profit is worse than the company’s original guidance, and it is consistent with our cautious view on the company’s core power battery business growth prospects.
The company’s profit growth has picked up in the first quarter of 2019, but gross profit margin restructuring is still the main growth in the recovery of profit growth in 2019-2020.
We believe that further government subsidy cuts will put pressure on China’s power battery demand growth in 2019-2020.
In addition, the business scale of the Ningde Times company is small, and Guoxuan High-tech should face the pressure of small size products and lower profit margins.
Therefore, we cut the company’s profit forecast for 2019-2020 by 20-30%.
We maintain the “Sell” level and cut our target price by 29% to RMB7.
80 yuan (13 times 2019 P / E ratio).
The new target price is based on our revised profit forecast for 2019-2020.
2018 performance was worse than expected; profit growth recovered in the first quarter of 2019, but gross margin contraction still constitutes a major problem Guoxuan Hi-Tech’s revenue in 2018 only increased by 6.
0%, 16 lower than the income guidance.
Due to the expansion of the decline in profit margin and the additional asset impairment of accounts receivable, the company’s 2018 net profit gradually continued to decline by 30.
8% to RMB 5.
800 million, more than 30% lower than the original profit guidance for 2018.
As OEM manufacturers accelerated sales of new energy vehicles before the new subsidy policy came into effect on June 26, which promoted the rapid growth of Guoxuan Hi-Tech’s core new 杭州桑拿 energy vehicle battery business in the first quarter, the company’s revenue increased rapidly in the first quarter to 65.
However, the company’s gross profit margin declined in the first quarter.
8 up to 30.
The company saved some administrative and sales costs.
However, due to the continuous increase in financing costs and the increase in effective tax rates, the company’s net profit in the first quarter continued to increase by only 25.
Uncertainty in the growth of demand for new energy vehicles combined with the pressure on profits caused by further price reductions, and the visibility of profit growth remains low. With the government’s further reduction of subsidies, we expect that China’s new energy vehicle demand growth visibility will be low in 2019-2020.
Although new energy vehicle battery sales increased by 182 in the first quarter.
The 6% is basically due to the OEM manufacturers speeding up sales before the new subsidy policy takes effect.
In addition, supplementary cuts will put increasing pressure on the average molecular weight and gross profit margin of power battery manufacturers.
Guoxuan Hi-Tech has a different technology and cost competition from the leading Ningde era in China. When facing the government’s large-scale reduction of supplements and competition becoming fierce, Guoxuan Hi-Tech will be in a more dangerous situation.
Therefore, we lower the company’s 2019 revenue forecast by 14.
2%, only maintaining the company’s 2020 revenue forecast.
In view of the severe pressure on profit margins, we have reduced our company’s profit forecast for 2019 and 2020 by 33 respectively.
7% and 24.
Overall, we expect earnings to increase by 6 and 2020 respectively.
9% and 23.
Accounts receivable increased by the end of 2018. The company’s accounts receivable accounted for 123% of total revenue in 2018. At the end of 2017, the proportion was 91%, and at the end of 2016, the proportion was 57%.
Accounts receivable turnover days also increased from 268 days in 2017 to 382 days in 2018 and 175 days in 2016.Operating cash flows in 2016 and 2017 remained negative.
Operating cash substitution increased from RMB 1 trillion in 2017 to RMB 15 in 2018.
Although operating cash flow in the first quarter of 2019 showed improved earnings, we still need to wait and see the previous operating cash flow situation.
Maintain rating rating We maintain rating rating of Guoxuan High Tech, with target price starting from RMB 11.
00 yuan down to RMB 7.
80 yuan, the target price-earnings ratio for 2019 remains 13 times unchanged.
The lower target price is mainly due to the downward revision of the profit forecast for 2019-2020.