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Risk reminder: The promotion of new energy vehicles does not meet expectations, overseas sales risks, and market competition intensifies.

Duofluduo: Net profit attributable to parent company increased by 1245% year-on-year in the first quarter, with 300 million yuan to support the company's development

Event: On April 17, 2016, the company announced its first quarter report for 2016, stating that it achieved a revenue of 538 million yuan, a year-on-year increase of 17.33%, a net profit attributable to the parent company of 112 million yuan, a year-on-year increase of 1245.13%, and an EPS of 0.45 yuan, a year-on-year increase of 1025%. At the same time, the company disclosed its performance forecast for January to June 2016, stating that the net profit attributable to the parent company from January to June was 247-252 million yuan, a year-on-year increase of 2500% -2550%.

The high price of lithium hexafluorophosphate has been maintained, and the profitability has been further enhanced. In 2015, the company ranked first in the production and sales of lithium hexafluorophosphate in the country. It is expected that the production will expand to 6000 tons by the end of the year, and its leading position is stable. Compared to the middle of last year, the cost of lithium hexafluorophosphate raw materials increased by less than 40000 yuan/ton, while the selling price increased from 90000 yuan/ton to about 400000 yuan/ton, with a profit margin of over 200000 yuan per ton. Due to the high technical threshold of lithium hexafluorophosphate, the expansion cycle takes 12-18 months, and most companies' new production will not be released until the end of 2016 or 2017. Therefore, the lithium hexafluorophosphate market will still be in a state of insufficient supply this year, and it is expected that the average price of lithium hexafluorophosphate will reach over 350000 yuan/ton this year. Maintaining the high price of lithium hexafluorophosphate will ensure a significant increase in the company's performance.

China Development Fund and Zhongyuan Asset 300 million special funds have assisted the company's development, and Red Star Automotive products have been selected for the Ministry of Industry and Information Technology Catalogue (Batch 3). The company announced on April 17 that China Development Fund will allocate 200 million special funds to support the company's annual production of 300000 sets of new energy vehicle powertrain and supporting projects, with a construction period of 54 months; An additional 60 million yuan was allocated to support the annual production of 300 million ampere hours of lithium batteries and supporting projects. At the same time, Zhongyuan Asset Management Company invested 40 million yuan in supporting the project, with a construction period of 24 months. The support of 300 million special funds will help alleviate the financial pressure on the company's project construction and accelerate the progress of project construction. The company sold 165 million watt hours of lithium batteries in 2015 and is expected to exceed 600 million watt hours in 2016. The company's lithium batteries are mainly ternary batteries. Recently, the industry has been affected by fraud and the suspension of the use of ternary lithium batteries in buses. However, the Red Star brand pure electric multi-purpose passenger vehicles (product model: HX640IBEV), which are planned to install the company's ternary lithium batteries, have recently been selected for the "New Energy Vehicle Promotion and Application Recommended Model Catalog" (batch 3) by the Ministry of Industry and Information Technology, The synergistic effect of lithium hexafluorophosphate+power lithium batteries+the entire vehicle industry chain pattern has begun to emerge, and the company has strong potential for development.

Investment suggestion: The company is expected to have EPS of 2.32, 2.80, and 2.10 yuan from 2016 to 2018, corresponding to PE of 31.3, 25.9, and 34.6 times, with a "buy one A" rating and a 6-month target price increase to 110 yuan.

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