Yutong Bus is a leading company in China's large and medium-sized passenger industry. Its management is excellent, and its market share is increasing year by year. From January to November 2012, the bus industry accounted for 29.3% of the market, and the market share of the Chinese passenger industry was 25.9%.
Policy side: In 2013, the policies of the large and medium-sized industries have been warmer, and bus and school bus sales growth has increased.
We believe that in 2013, the large and medium-sized passenger industry will usher in a policy recovery, mainly reflected in:
1) The frequent occurrence of school bus accidents will eventually encourage local governments at all levels to implement school bus safety and increase school bus procurement efforts;
2) After the change of government, bus sales growth will increase to 12%. We expect the sales growth of large and medium passengers in 2013 will reach 12%, of which the school bus growth rate is above 50%, and the bus growth rate is 12%.
Industry competition improves year by year, Yutong bus market share and ROE increase in the same direction
We believe that Dazhong Ke is the best competitive segment among the three segments in the auto industry. The reason is:
1) The market share of the two leading domestic companies has reached 50%, and is continuously improving;
2) Domestic passenger car companies have a strong international competitiveness; 3) Technology upgrades increase the entry barrier year by year.
The improvement of industry competition has made Yutong's ROE, the leading company, unilaterally upwards in the past decade.
Corporate Competitive Advantage Analysis: A Good System Excellent Entrepreneur
We believe that Yutong Bus can stand out in this completely competitive industry of large and medium-sized customers because it has different competitive advantages at different times. Good institutions and outstanding entrepreneurs make the company in human resources, technology and brand. Other aspects have advantages.
Short-term stock price catalysts: Positive YoY growth in sales in December and January and school bus implementation expectations. The company's stock price in the previous period fell due to a 21.8% year-on-year decline in sales in September. We believe this falls in the Yanan accident and the events before the 18th National Congress. Non-trend decline, it is expected that the company's sales in December and next year will be positive growth; In addition, school bus accidents in the winter will urge local governments at all levels to strengthen the implementation of school bus safety.
It is expected that the sales growth will increase by 20% in 2013, and the rating will be upgraded to “buyâ€, with a 6-month target price of 30.55 yuan. We expect the company's 2013 sales growth to increase by 20% and net profit growth by 15%. As the competitive landscape of the large and medium-sized industries has improved and Yutong’s leading position has been continuously strengthened, the 10x PE has become the lower limit of Yutong’s valuation from the perspective of its share price performance over the past five years. Raise the company's rating to “Buy†and raise the 6-month target price to 30.55 yuan, which corresponds to 13 times PE in 2013.
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