Morningstar

Morningstar, Inc.

Equity Bottom-Up

<p>Zhengzhou Yutong once again posts weak quarterly results with top and bottom lines down 24% and 47% year-overyear respectively. Disappointing performance is largely caused by the national government's cuts on EV subsidies. While the subsidy scale back will certainly lead contraction in the company's bottom line over the near term, we view this as a temporary disruption in an otherwise a fundamental industry shift toward new energy vehicles. With this expectation in mind, we think the company…</p>

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<li>Yutong posts another disappointing quarter with operating profit coming in at 50% year-over-year decline. Management attributed the majority of the profit slump to the government's cuts in electric-car subsidies, decline in high-margin export sales, and rising manufacturing costs.</li>
<li>With the expectation that more reductions in subsidies are to come, and Yutong's margins will suffer, we no longer think the company will achieve bottom line expansion this year.</li>
<li>Given a less optimistic outlook, we…</li>
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<p>After rallying nearly 20% over the past 12 months, we consider the current market price of Zhengzhou Yutong Group, or Yutong, fully priced relative to our fair value estimate of CNY 24.50 per share. We have trimmed our 2017 net income and top-line forecast by roughly 15% and 6%, respectively, to CNY 3.5 billion (from CNY 4.1 billion) and CNY 33 billion, mainly on weaker-than-expected newenergy bus sales amid toughening subsidy policy. Still, our long-term assumptions are intact, and Yutong…</p>

China

Zhengzhou Yutong Bus Co., Ltd. manufactures and markets medium and large size buses.