1H17 results beat expectation

Weifu High-technology announced its 1H17 results:

revenue was Rmb4.73bn （+40.45% YoY） and net profitattributable to shareholders was Rmb1.33bn （+40.52% YoY） orRmb1.31/share; recurring NP +45.64% YoY to Rmb1.208bn.

Trends to watch

Investment income rose in 2Q17; HQ’s contributionincreased. In 2Q17, investment income was Rmb482mn（+25.2% YoY & 2% QoQ）。 Notably, investment income from jointventures & associates rose 27% YoY to Rmb438mn.

Fuel injection systems maintained rapid growth; sectordownturn had limited impact on PV business. In 1H17, fuelinjection system’s revenue rose 54.09% as Weifu AutomotiveDiesel and Weifu Jinning recorded a respective 31% and 127%YoY net profit growth, driven by the booming HDT sector.

Profitability improved clearly QoQ in 2Q17; ample cashto support external expansion. In 2Q17, profitabilityimproved despite slowing revenue growth with net margin+3.7ppt QoQ to 30% and gross margin +2.3ppt QoQ to 22.2%.

Earnings forecast

Considering that the HDT sector may continue to meetexpectations in 2H17, we raise our 2017/18 EPS forecastsby 9%/7% from Rmb1.98/2.22 to Rmb2.15/2.38.

Valuation and recommendation

The stock is trading at 7.1x 2017e P/E. We maintain our BUYrating and HK$30.00 target price, implying 69.88% upsideroom from the current price.

Risks

Disappointing sales volume of HDT and PV.