Asia Pacific Shares' Net Profit in the First Half of 2011 Slipped 2% YoY

From January to June 2011, the company (referred to as "Asia-Pacific stock") realized operating income of 995 million yuan, an increase of 12.94% over the same period of last year; net profit attributable to the parent company's owner was 57.18 million yuan, a year-on-year decrease of 2.12% and an EPS of 0.20 yuan. In the second quarter, the company achieved an operating income of 532 million yuan, an increase of 16.29% year-on-year, an increase of 15.00% from the previous period; the net profit attributable to the parent company's owner was 28.54 million yuan, a year-on-year increase of 2.17%, a month-on-month decrease of 0.36%, and an EPS of 0.10 yuan. During the reporting period, the net cash flow from operating activities of the company was only RMB 1.49 million, which was a significant drop of 97.94% year-on-year. The main reason was that the cash received for sales of goods and rendering of services decreased by RMB 71.9 million year-on-year, and the “gold content” of revenue decreased. .

The gross profit margin decreased in the second quarter, and the period cost ratio rose due to the significant increase in the prices of raw materials (average purchase price of the company's pig iron rose by 25.74% year-on-year, and average purchase price of steel plate rose by 4.64% year-on-year) in the first half of the year. 15.90 percent, a year-on-year decrease of 2.40 percentage points, a decrease of 3.17 percentage points in the second quarter and a decrease of 1.01 percentage points from the previous quarter. With the continuous raising of interest rates and the expectation of lowering commodity demand from the European and US debt crisis, the prices of raw materials are expected to fall in the second half of the year, and the company’s gross profit margin is expected to improve significantly. In the first half of the year, the company’s fee rate was 8.75%, a year-on-year decrease of 2.04 percentage points, and a decrease of 1.52 percentage points year-on-year in the second quarter, but an increase of 1.89 percentage points from the previous quarter.

The traditional advantage of the company's brake business remained ahead In the first half of the year, the company's disc and drum brakes achieved revenue of 4.69 and 274 million yuan, respectively, an increase of 22.58% and 14.98% year-on-year, far higher than the company's other businesses and the growth rate of the automotive industry. The company has ranked first in the market for brakes for consecutive years in the domestic market, and is in a clear leading position. It is expected that in the future, it will continue to increase its revenue scale and maintain rapid growth by increasing the proportion of joint venture brands, expanding the AM market and export. The proportion of the company’s joint-venture branded customers’ revenue increased, and the risk of the decline in the market share of self-owned brands decreased. In the first half of the year, the company’s top five customers were SAIC-GM-Wuling, Chery, FAW Car, TRW, and Tianan Automobile. Compared with the same period of last year, SAIC-GM-Wuling’s revenue increased by 6.89 percentage points, and Chery’s revenue decreased by 0.68 percentage points. The proportion of revenue of FAW sedan increased by 0.46 percentage points, while that of Tianhe Fuao (mainly for FAW) accounted for 5.16% of the top five clients for the first time. Chang'an auto revenue accounted for a decrease of 2.51 percentage points. The proportion of the company’s joint-venture brand customers’ revenue increased significantly, and the decrease in the market share of self-owned brand companies reduced the risk to the company.

The company's fund-raising project will be put into production by the end of the year. The company's IPO funds are mainly invested in front and back module projects for brake capacity expansion and new entry. It is expected that the project will be completed before the end of 2011, and production will be achieved in 2013. After the project is fully in production, it can contribute a net profit of RMB 109 million per year, equivalent to an EPS of approximately RMB 0.38.

Profit forecast and rating The company's 2011-2013 EPS is expected to be 0.43 yuan, 0.55 yuan, and 0.75 yuan. It is calculated based on the current closing price of 10.40 yuan. The corresponding dynamic PE is 24 times, 19 times, and 14 times, respectively, considering the company's brakes. Leading edge and continuous growth capability in the sector, maintaining "overweight" investment rating.

Risks 1. The price of major raw materials such as steel in the second half of the year rises against the trend; 2. The growth of total vehicle sales in the second half of the year is lower than expected.