Guoxuan High-Tech:A mixed picture of future growth and near term margin pressure,Hold
Optimistic on the long term outlook despite short term hiccup
Guoxuan High-tech delivered flat YoY sales revenue and -17% YoY NPAT dropin 1H17, which was attributed to 1) uninspiring downstream battery demand,led by EV policy change, 2) batteries contract ASP decline, and 3) upstream rawmaterial price hike. Extrapolated from the company’s 9M17bottomline guidance,we believe that margin pressure will likely remain for the coming quarter. Inthe long run, Guoxuan is planning to strengthen its market-leading position todeliver high quality product with scale, and we think the company will still be thebeneficiary of the rising EV tide in China. In our view, the current share price haslargely factored in the expected strong growth in the future; maintain Hold.