Main points of investment:
Main composition: the company's main business is clothing export trade and real estate business. In mid-2010, clothing trade income accounted for 55% of the main income; real estate business income accounted for 44.7%. Clothing export trade is the company's traditional industry, but the development is relatively slow and the profitability is low. The real estate business is a new business of the company since 2005. the real estate business of the company has developed rapidly in recent years, but due to the shortage of land reserves, there is still some uncertainty in the future development.
The growth of clothing export business is slow and the profitability is weak: clothing export business mainly exports clothing to the United States, the European Union and other countries, and the growth of this business is relatively slow in recent years. At the same time, because the company adopts the way of commissioned processing to sell products, so the gross profit margin of trade business is low. As the RMB is still expected to appreciate in the future, we expect the company's trading business to have limited growth in the future.
Real estate business: the land reserve is insufficient, and the follow-up development is uncertain: the company's real estate business is operated through its two subsidiaries, namely Shenyang Yusheng Times Real Estate Co., Ltd. And Shenyang Wan Henglongyi Real Estate Co., Ltd. Each of these two real estate subsidiaries has a real estate project under construction, so the real estate business can still bring stable income for the company in the next three years, but because these two real estate companies currently have no land reserve, therefore, there is still great uncertainty in the follow-up development of the real estate business.
Major shareholders have expectations of asset injection, but the profitability of the proposed asset injection is limited: the company currently owns 60% of subsidiary Yusheng era and 70% of subsidiary Wan Henglong Yi, and the remaining shares of these two subsidiaries are held by major shareholders of listed companies. According to the information obtained from the survey, the major shareholders of the company will inject the remaining shares of the two real estate subsidiaries into the listed company in the next 1-2 years, but we are not sure when the specific assets will be injected. According to our estimates, the proposed injection of assets will increase the company's net profit by 20% over the next three years.
Profit forecast and valuation: according to the calculation of our profit forecast model, we expect the company's PS from 2010 to 2012 to be 0.11,0.13 and 0.17 yuan respectively, with year-on-year growth of-14.2%, 21.2% and 26.0% PE 139 / 115 times in 2010 / 2011. If asset injection is taken into account, we expect the company's 2011 / 2012 EPS to be 0.16 yuan and 0.20 yuan respectively, corresponding to the 2011 / 2012 PE of 96 times / 77 times. We believe that the current stock price already contains the expected factor of asset injection, the company's valuation is on the high side, and the subsequent rising space of the stock price is limited, so it maintains its "neutral" rating.
Investment risk: delayed injection of real estate assets by major shareholders; risk of RMB appreciation; lack of land reserves in the follow-up of real estate business.