Tuopu:3Q17slightly below on FX;maintaining Buy on potential from IBS
6% profit YoY with strong top-line growth offset by margin and FX。
3Q17gross revenue edged up 25.8% YoY to RMB1.2bn, likely driven by strongorders from local brands OEM customers, such as Geely, SAIC Roewe, andGAC Trumpchi. Gross profit rose 20.0% YoY to RMB324.2m with a 1.3ppt YoYgross profit margin contraction, mainly due to product mix deterioration with lesscontribution from shock absorber and intelligent braking segments, in our view.Together with a flattish SG&A to sales ratio in 3Q17, offset by FX losses (due toRMB appreciation vs. USD) and lower other operating income, 3Q17net profitincreased only mildly, 5.8% YoY to RMB164.1m.。
On a 9M17basis, Tuopu's net profit of RMB551.1m was up 30.1% YoY andaccounted for 70% of our full-year FY17forecast and 67% of the Bloombergconsensus FY17estimate. Therefore, we consider the results as a slight miss toboth our and consensus expectations.。
Deutsche Bank view – Buy on growth potential from ADAS。
We believe Tuopu will continue to benefit from the rapid growth momentumat its key OEM customers and expect Noise, Vibration and Harshness (NVH)parts to remain the company's major revenue contributor. In addition, we remainoptimistic on the growth potential of Intelligent Braking System (IBS) and ElectricVacuum Pump (EVP) products.。
Our target price is set at a target 26x FY18E P/E (unchanged), near with its midcycleP/E of 28x. Key downside risks: weaker-than-expected auto sales volume;
failure to record new order awards for IBS/EVP products; and unexpected increasein raw material prices.。