2016 results in line with expectation
Aerospace Automobile Electromechanical announced 2016 results: revenue was Rmb5.4bn （+35% YoY）； net profitattributable to shareholders was Rmb202mn （+17% YoY） or Rmb0.14/sh. In 4Q16, revenue was Rmb1.9bn （+4.5%YoY, +66% QoQ）； net profit was Rmb109mn （-41% YoY, turning profitable sequentially）， in line with preannouncedresults. The company would pay Rmb0.45 cash dividend （incl. tax） per 10 shares, indicating 32% payout ratio.
Trends to watch
Auto parts achieved strong growth. In 2016, auto parts unit generated Rmb1.8bn revenue （+668% YoY） with GM+3.8ppt YoY to 15% after the company acquired 50% stake in Shanghai SDAAC. SDAAC started to supply HVAC AHU forSAIC-Roewe E950 model in 2016. It also developed HVAC AHU for SAIC-GM SGMK226/227 models, which might startmass production in 4Q18. The company is working on the acquisition of the automobile heat exchange system businessunder Korea auto parts company erae Automotive Systems Co., Ltd., which is expected to generate synergy with theformer’s existing auto parts businesses.
PV unit kept stable growth. In 2016, PV unit generated Rmb3.19bn revenue （-3.9% YoY） dragged by sluggishdomestic demand in 2H16. PV stations sold 106.5MW and generated Rmb85.15.17mn investment gains. The companyadjusted marketing strategy, and enhanced cooperation with quality clients like Huadian Power, CMIG and CGN Power.Meanwhile, it also shifted its focus to markets in India, America and Australia. In 2016, the sales volume amounted to896.39MW, and overseas sales volume came in at 302 MW （+130% YoY）。 Improvement in sales structure partially offsetthe impact from volatile PV market in China.
Earnings forecast
We lower our earnings forecast by 4% from Rmb0.21 to Rmb0.2 per share for 2017, and by 4% fromRmb0.24 to Rmb0.23 per share for 2018.
Valuation and recommendation
The stock is trading at 54x 2017e P/E. We maintain our BUY rating and Rmb13.80 target price （68x 2017e P/E）， implying25.8% upside room from the current price.
Risks
PV station sales disappoint.
