Key points of investment
The company's cable products are mainly sold to the power industry
The company's main business is the production and sale of wires and cables, cable materials, and connectors. Downstream customers are concentrated in power grid companies and power generation groups. In addition, there are customers in other industries such as petroleum and petrochemicals. According to the approved performance report, the company's revenue in 2013 was 4,398 million yuan, an increase of 134.06% over the previous year, and net profit attributable to shareholders of listed companies was 166 million yuan, an increase of 208.50% over the previous year. The increase was mainly due to the merger of new subsidiaries acquired at the end of 2012.
Expand the scope of business and increase scale and market share through integration and mergers and acquisitions
Due to the decline in the growth rate of electricity consumption and the decline in the growth rate of electricity investment, the cable industry has also been in a slump in the past two years due to overcapacity. Therefore, at the beginning of 2012, the company proposed the development goal of “within the next two to three years, the company plans to use the capital market as a platform, use acquisitions and mergers to optimize the allocation of enterprise resources and accelerate product restructuring.” In 2012, the company completed the acquisition of Pearl Cable, Yuanfang Cable, and Xizhou Magnetic Wire through a non-public offering of shares, expanding the company's business in products such as power cables, military cables, mining cables, and magnet wires, perfecting the company's product structure and enhancing its overall competitiveness. We believe that the cable industry is large, but the concentration of the industry is low. It is particularly suitable for industry integration and mergers during the current industry downturn. Most of the listed companies are relatively large-scale enterprises in the industry and have more advantages in terms of financing, so it is promising as a platform for integration and mergers and acquisitions. Furthermore, since the company set development goals for integrated mergers and acquisitions earlier and accumulated experience in handling cases through the last large-scale merger and acquisition, the company has a relative first-mover advantage.
The progress of graphene cables is worth watching
Recently, the company announced a joint venture with Jiangnan Graphene Research Institute, Xi'an Jiaotong University Technology Achievement Transfer Co., Ltd., and Changzhou Sixth Element Material Technology Co., Ltd., to establish China Super Graphene Electric Power Technology Co., Ltd. The joint venture will carry out application research and industrialization promotion of graphene materials in the field of wires and cables. Graphene has excellent electrical conductivity, good mechanical properties, and thermal conductivity. Cables made of this material significantly reduce the resistivity of polymer semiconductor materials, which can greatly improve the effect of the homogenized electric field. The service life and operation reliability of the cable will be greatly improved. We believe that the joint venture has the background and ability to develop and manufacture, and that future technological maturity and increased customer acceptance will determine the progress of large-scale promotion of graphene cables, and its prospects are worth paying attention to.
Profit Forecasting and Valuation
We forecast that the company's EPS will be 0.36 and 0.39 respectively from 2014 to 2015, and the PE corresponding to the closing price on March 7 will be 24.3 and 22.4 times respectively, giving a “neutral” investment rating for the first time.
Risk warning
1. The risk that the effects of mergers and acquisitions are lower than expected; 2. The risk of brain drain.
