Summary
Jinwo convertible bonds will be listed on Monday, November 7, with a size of 310 million yuan. We think that according to the current market conditions, its listing position may be around 125 yuan.
Positive stock analysis
Issuer Jinwo Co., Ltd. focuses on the manufacture of bearing rings, and its customers are mainly large international bearing enterprises with rapid production expansion since 2021. The company's main products are bearing rings, which account for 94.84% of revenue in 2021, and are mainly used in automobiles, construction machinery and household appliances downstream. The overall volume of the domestic bearing industry is large and the industry concentration is low. According to the company's estimate, the market share of domestic bearing rings in 2021 is about 1.41%, which increases year by year with the expansion of business scale. the company is one of the few domestic bearing ring suppliers that have entered the procurement system of international large bearing enterprises. in recent years, due to the partial transfer of the bearing industry chain to China, the company's revenue increased by 61.34 in 2021 compared with the same period last year. In the first three quarters of this year, it increased by 27.01% compared with the same period last year. On the other hand, during the same period, the company's gross profit margin was under pressure due to the sharp rise in steel prices and repeated domestic epidemics. Gross profit margin decreased by 5.67pct/5.54pct in 2021 and the first three quarters of this year respectively. On the whole, what we think is noteworthy are:
1. The company's customers are mainly five international bearing enterprises, which benefit from the transfer of the industrial chain: the company has a high customer concentration and a stable structure. The proportion of revenue contributed by the five major customers before 2019-2021 is more than 90%. Among them, Schaeffler, Ensk and Skyver contributed 54.11%, 17.11% and 12.76% of the revenue respectively in 2021. In order to seize the market, large international bearing enterprises have set up factories in China, in order to reduce costs, rings and other pre-grinding products procurement localization, they are more focused on design, sales and wear and other links, and the industrial chain is gradually transferred to China. As a result, the demand of domestic production enterprises of the company's main customers has increased, and the proportion of domestic revenue has also increased from 44.42% in 2019 to 50.1% in 2021. We believe that as the company's production capacity continues to expand, the company is expected to further benefit from the transfer of the industrial chain and gradually increase market share, but at the same time pay attention to the operational risks caused by the excessive concentration of downstream customers. 2. The company actively extends the industrial chain, convertible bond investment project layout high-speed forgings and ring heat treatment projects: this convertible bond fund-raising is mainly used for high-speed forgings manufacturing projects and bearing ring heat treatment production line projects. we believe that after the project fully reaches production, it will help the company to extend the industrial chain to make up for its shortcomings, control the quality of important raw materials and reduce production costs, so as to enhance the company's profitability.
The valuation of positive shares is medium, and the flexibility is general. The company's current TTM is 32.38x and MRQ is 2.87x, which is basically at the average level of enterprises in the same industry. The scale of listed shares is small, with a total market capitalization of 1.833 billion yuan, which is in the 3% quantile of convertible bonds in the market, and 38.7% of the market is in circulation. All the remaining restricted shares will be lifted in June 2024. The volatility in the past 180 days is 45.83%, and the elasticity is general.
Terms and pricing
The scale of convertible bonds is small, and the protection of debt bottom is weak. The current convertible bond size is 310 million yuan, the initial conversion share price is 27.28 yuan, and the latest parity is about 87.50 yuan. Convertible bond rating A, with a maturity of 6 years, with a coupon of 0.5%, 0.7%, 1%, 2%, 2.5% and 3% respectively, the maturity redemption price is 115 yuan, the face value of the corresponding YTM is 3.4%, the debt bottom is about 66.8 yuan, the protection of the debt bottom is weak, and other provisions remain in the mainstream form.
At the pricing level, the company focuses on bearing ring manufacturing, and its customers are mainly large international bearing enterprises. In recent years, it has actively expanded production and extended the industrial chain upward to make up for the shortcomings. We believe that the future focus of the company is to undertake the increase in market share brought about by the transfer of the bearing industry chain, but short-term domestic demand pays attention to the fluctuation of steel prices and the domestic epidemic situation repeatedly exert pressure on the company's gross profit margin. The valuation of positive shares is medium, the scale is small, and the flexibility is general. The scale of convertible bonds is small and the terms are conventional. We think its listing position may be around 125 yuan.
Risk.
The construction of production expansion projects is not as expected, and the competition in the industry is intensified.