2Q19 earnings in line with our forecast
Fuyao Glass announced its 1H19 results: Revenue rose 2% YoY toRmb10.29bn but net profit attributable to shareholders fell 19.4%YoY to Rmb1.51bn. In 2Q19, the firm’s revenue remained flat YoY atRmb5.35bn and its net profit attributable to shareholders fell 31.1%YoY to Rmb0.9bn, roughly in line with our forecast.
Trends to watch
Main business records stable profitability in 2Q19, showing firm’ssolid business operations.
Weak automobile production weighs on Fuyao’s domestic business;earnings of US business improve thanks to ramp-up of productioncapacity.
Domestic business to bottom out and recover; earnings to improvequarter by quarter.
Financials and valuation
To factor in the consolidation of SAM and a sluggish auto sector, wecut our 2019 and 2020 net profit forecasts by 19.5% and 8.9% toRmb3.09bn and Rmb3.73bn.
The H-share is trading at 16.3x 2019 and 13.5x 2020 P/E. The A-shareis trading at 18.5x 2019 and 15.3x 2020 P/E.
For H-share we maintain OUTPERFORM and our TP of HK$30.00（21.8x 2019 P/E and 18.1x 2020 P/E）， offering 33.9% upside. ForA-share we maintain OUTPERFORM and our TP of Rmb27.00 （22.0x2019 P/E and 18.2x 2020 P/E）， offering 18.8% upside.
Risks
Trade friction between China and the US; slower-than-expectedrecovery of the passenger vehicle market.