Synopsis
Shunbo Convertible Bonds will be listed on September 7 (Wednesday), with a scale of 8.3 billion yuan. We think that according to current market conditions, its listing position may be around 102 yuan.
Underlying Stock Analysis
The company is a leading enterprise in the recycled aluminum industry, with a market share of about 5% 1. The main products are aluminum alloy castings and die-casting products such as aluminum alloy ingots. The upstream is aluminum scrap raw materials. The main customers are die-casting supporting companies. The terminal applications are automobiles and motorcycles, machinery and equipment, electronic appliances, hardware and lighting industries. The company's production and sales scale has continued to expand in recent years, and the performance growth rate is relatively fast. The compound annual growth rate of revenue/net profit from 2019 to 2021 was 31.88%/26.73% respectively. It plans to build a “cast aluminum alloy raw material supply+deformed aluminum alloy raw material supply” two-wheel drive enterprise. In our opinion, the company's main highlights are as follows:
1) Enterprises in the recycled aluminum industry are generally small, homogenization is serious, and fierce price competition has led to generally low gross margins. By maintaining a high asset turnover ratio (2.48 times, 2021), the company achieves high profitability; 2) The company's revenue structure is stable, and aluminum alloy ingot revenue accounts for more than 98%. 2022H1 achieved sales of founding/deformed aluminum alloy raw materials of 291,500 tons/12,900 tons respectively (42.28% of the annual target), due to the slowdown in procurement by some customers due to the decline in aluminium prices in 202Q2, and the stagnation of production and logistics in East China and Guangdong regions due to the epidemic. There is a certain correlation between the gross profit of the company's products and changes in aluminum prices. The decline in 2022Q2 aluminum prices led to a month-on-month decrease in the gross profit of the company's products.
We believe that whether aluminum prices can stop falling and stabilizing in the short term will have a certain impact on the company's gross margin recovery; 3) The company's fund-raising project is progressing smoothly. The production capacity in 2021 is about 640,000 tons (YoY +45%). The company expects production capacity to reach about 1.3 million tons in 2025, and the capacity utilization rate (86.5%, 2021) and production and sales rate (108.17%, 2021) are high. We believe that with the gradual expansion of production capacity, it is expected to open up new growth space for the company.
The underlying stock valuation is not weak, the elasticity is fair, and there is a certain steady trend in the short term. The latest P/E (TTM) of the underlying stock is 18.28x, which is in a position between its own history and similar companies. With a total market capitalization of 7.287 billion yuan, the issuance of convertible bonds puts some dilution pressure on existing share capital (dilution rate of 9.25%). The volatility rate for the past 180 days was 57.96%, and the elasticity was fair. The ban on 313 million initial restricted shares was lifted in August 2023 (accounting for 249% of tradable shares before the ban was lifted). The underlying stock has rebounded strongly since the end of April and has been in a pullback since August. There has been a certain steady trend in the short term.
Terms and pricing
The scale of debt conversion is small, debt base protection is weak, and the three major clauses remain mainstream. The amount of debt converted in the current issue was 8.3 billion yuan, the initial conversion price was 20.43 yuan, and the latest average price was about 81.25 yuan. The conversion rate is AA-, with a term of 6 years. The coupon interest rate is 0.3%, 0.6%, 1.0%, 1.6%, 2.0%, and 2.5%, respectively. The maturity and redemption price is 108 yuan. The YTM corresponding to the face value is 2.17%. The debt bottom is about 79.7 yuan, and the debt base protection is weak.
At the pricing level, focus on changes in aluminum prices and the progress of the company's production capacity expansion. The underlying stock valuation is not weak, the elasticity is fair, and there is a certain steady trend in the short term. The scale of debt conversion is small, debt base protection is weak, and the three major clauses remain mainstream. We think that according to current market conditions, its listing position may be around 102 yuan.
risks
Competition in the industry has intensified, fund-raising projects have fallen short of expectations, aluminum prices have continued to fall, new material substitution risks, convertible debt default risks, and stock price fluctuations.