Investment positives

A beneficiary of steady growth of overseas AM market;great efforts to explore OEM market: Longji’s brakebusiness saw steady growth in the overseas AM market, andLongji has established partnership with NAPA and Autozone toexplore the overseas and domestic OEM markets. The steadygrowth of the overseas AM market lays technological and fundingfoundations for its exploration of the domestic OEM market. Atpresent, Longji is developing new products for both PVs and CVsin a bid to reduce its reliance on the CV market.

Establishment of JVs to enter European high-end OEMmarket: Longji established a JV with the Germany-based SHWAutomotive to step up its brake disc business for high-endvehicles. Going forward, Longji is likely to cooperate with itsoverseas partners to enter the supply chain of high-end brandssuch as Porsche and ABB and enter the overseas OEM market.

Acquisition of equity stake in Shanghai Cheyi to enterautomotive aftermarket: Longji will use www.cheyian.comand Yangchebao APP to help “b” (i.e. service providers under themodel of C2b2B) obtain customers, and use ERP system to help“b” address the issues of order response, inventory managementand parts procurement. Shanghai Cheyi also uses B2b Cheyipeiplatform and logistics & distribution system to help “b” deal withparts procurement matchmaking, logistics and transportation.

Financials

We expect revenue to grow 20.3% YoY to Rmb1.49bn in 2015,18.4% YoY to Rmb1.76bn in 2016, and 17.4% YoY to Rmb2.07bnin 2017; net profit to rise 29.5% YoY to Rmb59mn orRmb0.20/sh in 2015, 31.3% YoY to Rmb77mn or Rmb0.26/sh in2016, and 26.6% YoY to Rmb98mn or Rmb0.33/sh in 2017.

Valuation and recommendation

We expect Longji to post a net profit CAGR of 28.9% over thecoming three years. Initiate with a HOLD rating and TP ofRmb22 based on 80x 2016e P/E.

Risks

Sales volume below expectation.