1–3Q17 results beat expectations

Jiangxi Special Electric Motor announced its revenue fell 7.5% YoY toRmb1.94bn and net profit rose 21.9% YoY to Rmb211mn in 1–3Q17,in line with our expectations. Its management guide net profit willgrow 60–90% YoY to Rmb316mn–375mn in 2017. Its earnings growthwas backed by decreasing bad loan provisions, gains from assetdisposal, and government subsidies. JSEM’s AFV unit was affected byindustry policy weighing on overall revenue, with GPM -2.2ppt andexpense ratio +2.1ppt in 1–3Q17.

Trends to watch

Joylong’s earnings should halt decline and spur faster growthin 2018.

Lithium carbonate should ramp up from 4Q17 onwards.

The Bald Hill project will secure spodumene supply andcontribute investment gains.

Earnings forecast

We maintain our earnings forecasts for FY2017/18.

Valuation and recommendation

The stock is trading at 39x 2018e P/E. We maintain our BUY ratingand target price at Rmb18.34, implying 23.5% upside room from thecurrent price.

Risks

Sales volume of AFVs disappoint; lithium carbonate productioncapacity increases slowly.