3Q17 results in line with expectation

ZYNP Corporation announced 3Q17 results: revenue grew 33.7% YoYto Rmb379mn and net profit attributable to shareholders grew 33.8%YoY to Rmb78.752mn, or Rmb0.13 per share. Over 1–3Q17, itsrevenue grew 31.6% YoY to Rmb1,106mn and net profit attributableto shareholders grew 27.8% YoY to Rmb210mn. Results were in linewith expectations.

Trends to watch

Profitability kept improving QoQ; financial expenses rose. Thecompany’s revenue grew quickly over 1–3Q17 driven by strongdemand in the domestic heavy-duty truck （HDT） market, steadygrowth in North America and the acquisition of Incodel.

Net profit excluding non-recurring items grew 28.7% YoY in 3Q,slightly slower than net profit growth. Government subsidies rosethanks to strong sales. Asset impairment loses turned negative andtaxes slightly rose due to consolidation of the North Americasubsidiary.

US subsidiary to generate profits in the short term; expansion intonew businesses to boost growth in the longer term.

Earnings forecast

Although its equity incentive scheme could boost earnings growth,renminbi appreciation could lead to currency risks and the domesticHDT market may peak. We lower our 2017 earnings forecast by 5.2%to Rmb280mn, and 2018 by 4.9% to Rmb320mn.

Valuation and recommendation

The stock is trading at 19x 2018e P/E. We maintain our BUY rating,but lower our target price by 5.33% to Rmb14.20, or 36.8% upside.

Risks

Worse-than-expected decline in HDT demand; RMB’s appreciationagainst US dollar.