Bank of America: Anhui Yingliu’s third-quarter growth beats expectations, but price target cut amid capacity expansion

What drove the third-quarter beat?

Anhui Yingliu’s third-quarter revenue was 1.113 billion yuan, up 51% year over year and 18.3% quarter over quarter, and 11.8% above BofA’s forecast. The bank said production in aerospace and industrial gas turbine-related businesses ramped up faster than expected.
Net profit attributable to shareholders was 150 million yuan, up 41.9% year over year and 29.5% above BofA’s forecast. Improved operating efficiency lowered the expense ratio, providing another source of profit support alongside the revenue beat.
Gross margin nevertheless fell 3.6 percentage points year over year to 34.4%. BofA attributed the decline to depreciation of the US dollar against the yuan and rising raw-material costs. Over the same period, the operating expense ratio fell 3.6 percentage points to 18.5%, offsetting some of the pressure.

Third-quarter shipments of aero-engine and industrial gas turbine castings totaled 530 million yuan, accounting for 48% of company revenue. New related orders signed during the quarter totaled 600 million to 700 million yuan, and the order backlog stood at 2.3 billion yuan at the end of September. Management remains confident of meeting its full-year target of 3 billion yuan in new orders.
The company brought three melting furnaces into operation in the third quarter and plans to bring two more online in the first half of 2027. Management aims to raise monthly engine casting output value from 170 million–180 million yuan in October 2026 to 200 million yuan by the end of 2026 and 300 million yuan by the end of 2027, supporting its 4 billion yuan revenue target for 2026.
BofA is positive on growth in gas turbine deliveries and believes capacity expansion and a broader customer base can help the company increase its share. However, higher raw-material prices, slower-than-expected capacity expansion and unsuccessful product qualification by new customers would affect this assessment.

Management targets revenue above 5 billion yuan and a net margin of 14%–15% in 2027. BofA’s model forecasts revenue of 5.326 billion yuan and net profit attributable to shareholders of 821 million yuan in 2027.
Growth ties up capital: BofA forecasts operating cash flow of 386 million yuan in 2026 and 422 million yuan in 2027, both below capital expenditure of 600 million yuan in each year. Free cash flow is forecast at negative 214 million yuan and negative 178 million yuan, respectively, before turning positive at 80 million yuan in 2028.

BofA lowered its earnings per share forecasts for 2026 through 2028 by approximately 2%, 3% and 3%, respectively. It also cut its price target from 67 yuan to 54 yuan and maintained its Buy rating.
The new price target is the average of valuations based on the price-to-earnings and discounted cash flow methods. BofA reduced its 2027 forward price-to-earnings multiple from 60 times to 50 times, yielding a valuation of 56.4 yuan; its discounted cash flow valuation is 51.1 yuan.