Jianghuai Automobile Company Adds 2.8 Billion Swords to Passenger Vehicles

On March 18th, Jianghuai Auto (600418) disclosed its 2010 annual report. At the same time, the company revealed a public financing plan that issued no more than 150 million shares and raised no more than 2.8 billion yuan. The funds raised were mainly used for the expansion of the company’s passenger car base and the company’s annual output of 200,000 high-performance gasoline engines. This shows Jianghuai Automobile's determination to continue investing heavily in passenger vehicles. At present, most of the major brokerage companies have given Jianghuai Automobiles an "overweight" rating.

The 2.8 billion yuan issuance plan is invested in the passenger car JAC. The 2010 annual report released on March 18 shows that, thanks to the increase in sales scale, the company achieved a total revenue of RMB 29.7 billion, an increase of 47.84 percent year-on-year; and a net profit of RMB 1.163 billion. Increase by 246.35%. The realized earnings per share was 0.90 yuan, the return on net assets was 24.13%, the net assets per share was 4.17 yuan, and the cash flow from each operating activity was 1.21 yuan.

For this splendid annual report, most brokerages believe that JAC's sharp increase in profits in 2010 first came from the stable performance of the two pillar businesses of light trucks and MPVs.

JAC also expects that the company plans to achieve a total revenue of 33.1 billion yuan in 2011, sales of 510,000 vehicles and chassis. In January-February this year, Jianghuai Corporation achieved a total sales volume of 93,000 vehicles, a year-on-year increase of 17.6%.

At the same time that the annual report was published, Jianghuai Automobile also thrown out a public offering fundraising plan worth 2.8 billion yuan. According to the announcement of Jianghuai Automobile, the company plans to issue no more than 150 million yuan of ordinary shares through public issuance, and the raised capital will not exceed 2.8 billion yuan. The main investment projects are: Anhui Jianghuai Automobile Co., Ltd. passenger car base expansion project, Anhui Jianghuai Automobile The company has an annual output of 200,000 high-performance gasoline engine projects.

Differences among brokerage firms Guojin Securities believe that Jianghuai Automobile chose to continue to invest in passenger vehicles, mainly because the company’s passenger vehicle production capacity cannot meet the growth requirements in the future. JAC currently has a passenger vehicle production capacity of 240,000 vehicles. In 2010, the sales volume of passenger vehicles has exceeded 200,000 units. It is indeed imperative to expand production capacity, and the completion of additional issuance will also benefit the continued rapid development of the company's passenger vehicle business.

According to the financing scale and the ceiling of the issuance of shares, Jianghuai Automobile's issuance price is close to 18.7 yuan. Although brokerages believe that this reflects the company’s management’s optimism regarding its development prospects, the major brokers also gave different opinions because the price was significantly higher than its stock price (Jianghuai Automobile’s March 22 closing price was RMB 14.19). .

National Securities analyst Cao He believes that this program is expected to be adjusted. Cao He believes that the main risk lies in the relaxation period of the passenger car market in the next two or three years, and the expansion of various companies may evolve into an industrial crisis.

BOC Securities expects JAC's 2011 earnings per share to rise to around RMB 1.5-1.6, which is only equivalent to a P/E of 11.5x. Therefore, it believes that the implied price of RMB 18.7 is more reasonable.

BOCI We maintain our profit forecast for the company's 2011 earnings per share of 1.50 yuan. The current dynamic price-earnings ratio is less than 10 times. Considering the steady growth of the company’s MPV and light truck business and the substantial increase in the profitability of the sedan business, it is recommended to give the company 15x P/E in 2011 and maintain a target price and BUY rating of RMB 22.50.

CICC's current stock price corresponds to 11.1x and 9.6x in 2011 P/E and P/B respectively, and the valuation is at the low end of the industry. Taking into account the stable growth of the company's MPV business earnings, and the greater flexibility of the car business profitability, we maintain our prudent recommendation of investment rating.