Core ideas:
Shanggong Shenbei achieved operating income of 1,039 million yuan in the first half of 2015, an increase of 7.1% over the same period last year (18.7% year-on-year growth if deducting the influence of the euro exchange rate). The net profit belonging to the shareholders of the parent company was 100 million yuan, an increase of 139.7% compared with the same period last year, and the company's performance was better than market expectations. The operating net profit reached a record high in the same period. In the first half of 2015, the company's net profit after deduction was 91 million yuan, but reached an all-time high in half a year (the highest net profit was 74 million yuan in 2014). This is mainly due to the merger and acquisition of three companies in Europe, through the integration of overseas resources, enhance regional market control, while the domestic industrial structure adjustment, so as to continuously improve the profit level. In the first half of the year, the net profit of Gonggong Europe was 78 million yuan, an increase of 29.3% over the same period last year, while Duke Pu Aihua (Shanghai) achieved a net profit of 10 million yuan, an increase of 138.1% over the same period last year.
Announcement investment into Stoll: the company intends to increase its investment in Germany's Stoll through Shanggong Europe, with a total investment of about 28.5 million euros. Upon completion, it will acquire a 26% stake in the latter and become its largest shareholder. Stoll, a family enterprise with a long history, is the world's top professional manufacturer of computerized flat knitting machines, currently suffering from the instability of the flat knitting machine market and new competitors in the Chinese market. In the first half of 2015, Stoll had operating income of 122 million euros, net profit of 2 million euros and net assets of 86 million euros at the end of the period. Shanggong Shenbei has successful experience in industrial integration in Europe, and the products, services and sales systems of both sides are complementary.
Accelerating the reform and development of the state-owned assets system in Pudong: in June 2015, the Pudong New area held a working conference on deepening state-owned assets reform and promoting enterprise development, and formally issued the "18 articles" on the reform of state-owned enterprises in Pudong.
Profit forecast and investment advice: from 2015 to 2017, we expect the company to achieve operating income of 2153 yuan, 2362 yuan and 2,598 million yuan respectively, and EPS of 0.361 yuan, 0.421 yuan and 0.485 yuan respectively (note: the company earned about 100 million yuan from land acquisition and storage in 2014, resulting in a low profit growth in 2015. In fact, we predict that the company's main business profits will achieve rapid growth in 2015. As a leading enterprise in the field of industrial sewing equipment, the company has successful experience in cross-border mergers and acquisitions and integration, and benefits from the reform of state-owned enterprises in Pudong. Combined with performance and valuation, we continue to give the company a "buy" investment rating.
Risk hints: the expansion risk of M & An integration; the process of state-owned enterprise reform is uncertain.