Event description

Baoding heavy Industry reported in 2014 that its operating income from January to June was 131 million yuan, an increase of 46.74 percent over the same period last year, and the net profit attributed to shareholders of listed companies was 6 million yuan, down 14.64 percent from the same period last year.

Event comment

Thanks to the pick-up in shipbuilding demand, orders and sales rose sharply in the second quarter compared with the same period last year, and the performance was confirmed at an upward inflection point. The global shipping market has picked up, and China's orders for new ships have increased by 78% since 2014 compared with the same period last year. In the second quarter, the sales revenue was 71 million yuan and the net profit was 3 million yuan, up 63% and 57% respectively over the same period last year. The upward inflection point of performance has been further verified, and it is expected that the growth rate may continue to rise in the next 1-2 years.

However, due to the two major fund-raising projects "annual production of 2000 sets of crane hook assembly construction project" and "annual finishing 20000 tons of large castings and forgings construction project" have been completed and put into production in the first quarter, the depreciation of fixed assets in the first half of the year increased significantly compared with the same period last year, resulting in a 15 per cent drop in net profit compared with the same period last year.

Sufficient orders on hand, finishing and other projects will gradually contribute to the performance. New orders received from January to June increased rapidly, among which new orders for medium and low speed diesel engine parts exceeded those for the whole of 2013. Under the condition that the production of marine castings and forgings is saturated, the expansion of finishing and other new products is accelerating and is expected to contribute to the performance in the second half of the year.

China undertakes the transfer of international production capacity, develops its own offshore oil and gas demand, and the domestic offshore manufacturing industry is booming. The localization of accessories brings a good opportunity for the company to expand. Early industry grass-roots research feedback, benefiting from the transfer of offshore platform manufacturing capacity to China, China's increase in the development of oil and gas resources in the East China Sea and South China Sea, domestic offshore enterprises have full orders. More importantly, high-quality domestic accessories will gradually replace imports, and there is a huge room for growth. The company's semicircular plates and other marine products are gradually recognized by customers at home and abroad, and it is expected that the harvest will be ushered in in 2015-16. Marine products are expected to become the new core growth pole in the next few years.

With the "three certificates" in hand, the military business revenue is expected to increase, and the extension expansion is steadily advancing. The company has successively obtained "weapons and equipment quality Management system Certification Certificate", "three-level Secret qualification Unit Certificate" and "weapons and equipment Scientific Research and production license" and other "three certificates", and is qualified to participate in military bidding. Revenue from accessories for marine surveillance ships and other military products may increase significantly. At the same time, relying on the favorable conditions such as the capital market platform and the accumulation of customer resources, the extension expansion is advancing steadily to enhance the medium-and long-term development potential.

Performance forecast and investment advice: it is estimated that the sales income in 2014-15 is about 3.50 yuan and 560 million yuan respectively, the net profit belonging to the parent company is about 0.25 yuan and 87 million yuan respectively, the EPS is about 0.08,0.29 yuan per share, and the corresponding PE is about 125,36 times respectively.

Risk hint

The contribution of fund-raising projects to profits or the progress of extension expansion is lower than expected.