Performance review
From January to September 2019, the company achieved a revenue of 4.58 billion yuan, a year-on-year increase of 52.1%; a net profit of 1.16 billion yuan, a year-on-year increase of 205.9%; a net profit of 1.13 billion yuan, a year-on-year increase of 26.59 billion yuan, a year-on-year increase of 26.59 billion yuan. Performance exceeded expectations.
Business analysis
Q3’s single quarter performance increased significantly: Q3 company achieved a revenue of 2.05 billion yuan, an increase of 81.9% and 43% respectively in the same period and on a month on month basis; it achieved a net profit of 660 million yuan attributable to the parent company, an increase of 199.2% and 119.3% respectively in the same period and on a month on month basis; it achieved a net profit of 640 million yuan deducted from the non parent company, an increase of 297.5% and 118% respectively in the same period and on month basis.
The main reasons for Q3’s performance exceeding expectations are as follows: 1) the investment income of Smoore electronic cigarette exceeded expectations. Q3 company achieved an investment income of 330 million yuan, accounting for about 46% of the company’s operating profit, with an increase of 113.6% and 47% on the same period and on the same period, respectively. The significant increase in investment income was mainly due to the unexpected performance of Smoore‘s electronic cigarette business; 2) the significant increase in battery business profit. The company’s Q3 gross profit margin was 33.2%, increasing by 13.1pct and 8pct respectively in the same period and the month on month ratio, and the operating profit after deducting investment income was about 380 million yuan, increasing by 412% and 363% respectively in the same period and the month on month ratio.
The company’s battery business profit increased significantly mainly due to: 1) the amount of etc battery. The State Council requires that the provincial toll stations of expressways be basically cancelled within two years, and the etc promotion efforts be accelerated. The company is the main supplier of etc battery system. After a recent climb, the monthly production capacity has been increased to more than 10 million sets, and is still improving; 2) overseas power soft pack battery orders began to be delivered. After holding hands with sk of South Korea, the company won the orders of Daimler, Kia Hyundai and other well-known automobile enterprises, and Q3 began to deliver. It is expected that 0.2gwh will be delivered in 2019h2, and about 2gwh will be delivered in 2020; 3) the cylindrical battery will be converted into consumption, and the capacity utilization rate will be greatly improved. Since 2019, all cylindrical batteries have been transferred to the field of consumer electronics, with a significant increase in capacity utilization, corresponding to a significant improvement in revenue and profit. The company’s short-term growth is still driven by the high growth of electronic cigarettes, the emission of lithium primary battery etc, and the conversion of cylindrical battery to consumption. In the medium term, the company relies on the emission of soft bag and iron lithium power battery, with a large space and long-term growth.
Profit adjustment and investment suggestions
Considering that the investment income of e-cigarettes and the growth of battery business exceeded expectations, the company’s net profit attributable to the parent company in 2019-2021 was increased to 1.591 billion yuan (+ 29%), 1.912 billion yuan (+ 12%) and 2.214 billion yuan (+ 0.4%), with a year-on-year growth of 179%, 20% and 16%, maintaining the “buy” rating.
Eve battery (300014) outperformed expectations again, and the electronic cigarette and battery business increased hand in hand. The vape industry is still growing.
