Decline Slowed in the Third Quarter
Tuopu Group recorded a revenue of RMB3766 million in the last three quarters, a 15.50% fall compared with the same period of last year. Among which, Q3 revenue was RMB1328 million, signaling a 3.90% Y-o-Y decrease and a M-o-M increase of 11.30%. Compared with the 25% decrease in the second quarter, the decrease has significantly shrunk.
In terms of net profit attributable to the parent company, it was RMB340 million in the last three quarters, decreasing by 30% year-on-year. Among the RMB340 billion, RMB130 million was in the third quarter, which represented a 30% year-on-year decrease and a 30% month-on-month increase. Compared with the same period of last year, gross profit margin and net profit margin down 1.55 and 3.5 ppts, respectively, mainly attributed to the decline in industry prosperity and the increase in depreciation.
Recovery of Sales Volume of Major Customers Leads to the Improvement of Capacity Utilization Ratio
The improvement in results in the third quarter is resulted from the improved demand from downstream customers. The output of the company's major customers Geely Motor and SAIC GM increased by 9.3% and 3.8%, respectively in the third quarter over the previous quarter. The production of SAIC self and Chang`an Ford also improved compared with the previous quarter, leading to a rebound in the company's capacity utilization. Gross profit margin increased by 0.6 ppts to 26.4% compared with the second quarter, and net profit margin also increased by 1.4 ppts to 9.55% compared with the second quarter. We expect that with the further improvement in sales of major customers in the fourth quarter, the company's profitability will continue to pick up, and net profit growth is expected to be positive.
The company continued to reduce costs and increase efficiency in adversity, and the sales, management and R&D expenses accounted for 14.76% of revenue in the third quarter, which fell by 0.92 ppts compared with the second quarter. The company has a good cash flow with a RMB226 million net flow from its operating activities. Inventories fell 12.9% year-on-year to RMB1.14 billion.
Lightweight and Automotive Electronics Business See Opportunities for Development
The construction of Tesla's Shanghai plant was faster than expected. The trial production began in October and nearly 20,000 vehicles will be produced by the end of the year. As capacity climbs, production will reach 150,000 in 2020 and is expected to exceed 250,000 in 2021. Tuopu supplies Tesla with more than RMB5,000 for each vehicle, and it is estimated that the Model 3 vehicles will bring the company a net profit increment of RMB93 million and RMB180 million in the next two years, respectively, accounting for about 12% and 24% of the company's net profit in 2018. In the field of automotive electronics EVP and IBS, the company's visionary layout brings it a leading position among domestic manufacturers. Tuopu is expected to break through the technological monopoly of foreign giants and realize domestic substitution in the future.
Overall, the Company's lightweight chassis and automotive electronics business are in line with the trend of industry upgrading, which will inject momentum into the company's new round of development.
We estimate that the company's net profit in 2019/2020/2021 will reach RMB513 /714/969 million, respectively, with the corresponding EPS being RMB0.49/0.68/0.92. Although the results in 2019 are under pressure, under the acceleration of Tesla's localization, the company's results will usher in an inflection point and we are optimistic about the development prospects of the company's lightweight business and automotive electronics. So, we lift the Company's target price to RMB19, respectively 26/21 x P/E for 2019/2020/2021, a "Accumulate" rating. (Closing price as at 19 Dec)
Price war among peers
Raw material price increase
New business risk
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