1H15 results missed
In 1H15, revenue +1% to Rmb8.4bn and net profit +9.7% to Rmb137mn or Rmb0.14/sh, below our forecast, mainly due to small ASP rebound (8.6% actual vs. our expected 10%).
Trends to watch
ASP rebounded in 1H15. ASP of lead-acid motor batteries rose by 8.6% HoH to Rmb101/unit in 1H15 from Rmb93/unit in 2H14, but still lower than 1H14’ Rmb103/unit. We believe ASP will further increase in 2H15 by ~2% to Rmb103/unit.
Expanding distribution channel. The company further increased its number of independent distributors in the secondary market from 1,783 at end-2014 to 2,098 at end of 1H15. As 78% of revenue came from secondary market in 1H15, we believe distribution channel expansion will further enhancethe company’ s market share (43% in 2014).
Start-and-stop batteries. With the cooperation with Moll, in which Chaowei holds 40% stake, the company is expected to start ramping up start-and-stop battery production in 2H16 with designed capacity of 2mn units per year and reach full utilizationat the end of 2017. The company expects an ASP of Rmb500~800 per unit.
Earnings revisions
We cut our 2015/16e earnings forecasts by 33%/39% to Rmb426/502mn, implying EPS of Rmb0.42/0.50 as a result of lower-than-expected ASP rebound.
Valuation and recommendation
We cut our TP by 21.3% to HK$5.46, based on 9x 2016eP/E. Maintain BUY rating.
Risks
Delay in start-and-stop battery production.