Event: Ruiling shares announced today an equity incentive plan to grant 3.39 million restricted shares to the incentive target. The restricted stock price involved in this plan is 10.78 yuan per share. The performance evaluation conditions are based on the performance in 2014, the growth rate of net profit in 2015 is not less than 15%, the growth rate of net profit in 2016 is not less than 40%, and the growth rate of net profit in 2017 is not less than 60%.
Comments:
1. Ruiling has always wanted to do equity incentive since its listing, but the stock price has risen with the gem since last year, and there has been no suitable opportunity. On the one hand, the launch of equity incentive shows that the company is full of confidence in the future development, on the other hand, from the performance target, the growth target for 2016 is the highest, indicating that when the growth rate of the industry is declining, there may be extension growth brought by mergers and acquisitions. Since listing, the company has been looking for suitable acquisition targets, and has also set up a M & A fund, hoping to become an industry leader in the field of welding and automation. The launch of the equity incentive program has strengthened our judgment.
2. The industry is stable, and the company's profit growth is slightly better than that of the industry. The main business products of Ruiling shares are a series of inverter welding and cutting equipment, with a business income of 680 million yuan in 2014, basically the same as the same period last year, with a net profit of 110 million yuan, an increase of 20% over the same period last year, better than the industry and competitors. The macroeconomic downturn in the first quarter of 2015, Ruiling shares, which is dominated by industry as a downstream customer, remained stable, with operating income of-8.4%, and net profit belonging to shareholders of listed companies increased by 3.2%. In recent years, the profit growth rate of Ruiling is higher than that of income mainly from the improvement of internal management, cost control and other reasons, in addition, the rate of return of funds has also improved significantly, seizing the opportunity of the appreciation of the US dollar and increasing exchange gains. Orders were stable in the first quarter, the growth rate slowed down compared with last year, but also did not decline, the distribution of downstream customers is also relatively stable, the industry is expected to grow steadily.
3. With 1.2 billion yuan of super-raised funds, epitaxial mergers and acquisitions will be the growth point in the future. Mergers and acquisitions in the domestic market hope to achieve synergy through mergers and acquisitions, focusing on welding machines and welding materials. If small projects are not profitable, they will be ovalized through M & A funds (established in March 2014) and then injected into listed companies. The selection criteria are relatively strict. In the international market, we are actively looking for strategic partners and acquisition targets. In June 2014, the company signed a "Project Cooperation Agreement" with CLOOS, and the two sides reached an agreement on matters related to the joint development, production and sale of welding products around the world. The first product of the cooperation between the company and CLOOS has been released at the 2014 International sheet Metal processing Technology Exhibition in Hannover, Germany, through CLOOS in October 2014. now it is mainly supporting with CLOOSE abroad, mainly selling in Europe, with a target of 1000 sets this year, and future cooperation may also involve automation and robots. Chairman Qiu has a high position on the future of the company, hoping to become a leader in the industry through mergers and acquisitions, and overseas mergers and acquisitions are also inclined to consider the top five companies.
4. In 2014, the company continues to reserve advanced welding technology, and the main new technical achievements include TRI-ARC double-wire three-arc technology, digital multi-loop waveform control welding, current mode PI control technology and so on. Double wire welding machine is the main new product this year, mainly used for thick plate welding, using two welding wires to ensure welding quality and improve welding efficiency. Digital welding machine, the promotion is slow, the product development is more forward-looking, it is not suitable for the current Chinese market.
5. In the future, the company will focus on opening up the international market to match the American leader Lincoln Electric. In 2014, the company's overseas sales accounted for 34.8%. This year, the company is greatly influenced by Russia. in the future, the company will carry out overseas mergers and acquisitions, expand sales scale and enter the European and American markets. Compared with the international leader Lincoln Electric, Ruiling's income and scale still have room for improvement. Lincoln Electric had sales of $2.8 billion in 2014 and has 2400 employees. 90 per cent of its sales come from the production of arc welding equipment and auxiliary materials, with a market capitalization (today) of about $5.37 billion, 26 times and 5.8 times that of Ruiling.
Lincoln's growth was also achieved through cross-border mergers and acquisitions. Since the 1990s, Lincoln Electric began to enter the international market, investing 325 million dollars in overseas expansion to build factories in Japan, Venezuela and Brazil. Buy off-the-shelf companies in Germany, Norway, the United Kingdom, the Netherlands, Spain and Mexico.
6. Maintain a highly recommended-A rating. Forecast 2015-2017 EPS0.58, 0.70,0.85 yuan, 2017 dynamic PE30 times, the current PB3.2 times, still lower than the industry average. Considering possible future mergers and acquisitions, the company is expected to become a leader in the welding and automation industry, raising its target price to 35 yuan according to a 50-fold estimate next year, maintaining a highly recommended rating.
7. Risk factors: M & A risk; macroeconomic risk.
