2016 earnings slightly missed expectation

Longji Machinery announced its 2016 results: revenue wasRmb1.472bn, up 6.15% YoY; net profit attributable toshareholders was Rmb60.16mn, up 8.33% YoY, or Rmb.016 pershare, slightly missing our expectation.

Trends to watch

Earnings growth hit a new high in 4Q16; visibleimprovement in financial expenses.

Inventory pressure eased; brake disc profit driven by risingvolume.

Private placement approved; ample working capital.

Earnings forecastWe trim our 2017 earnings forecast by 10% to Rmb71mn and setour 2018e earnings forecast at Rmb85mn.

Valuation and recommendation

The stock is trading at 67x 2017e PE. Maintain BUY and cutTP by 13% to Rmb15, implying 83x 2017e P/E.

Risks

Continued losses from IoV.