Event: the company plans to issue new shares on the Shenzhen Stock Exchange on July 7, 2015.
Main points of investment
The company is a leading manufacturer of industrial lubricating oil products in China. The company is mainly engaged in the R & D, production and sales of all kinds of industrial lubricating oil and automotive lubricating oil products. The products include transformer oil, hydraulic oil, internal combustion engine oil, gear oil, metalworking oil, special solvent and other 13 categories and more than 200 specifications and models, which are widely used in power and electrical equipment, construction machinery, industrial machinery and equipment, metallurgy and transportation and other fields. By purchasing base oil from petroleum refining and chemical enterprises or other dealers, and processing the base oil through distillation, cutting, supplementary refining, blending and other processes, the company produces lubricating oil products that meet customer requirements and sells them to end users, some of the products are also sold through dealers. In 2014, the sales volume of transformer oil, hydraulic oil and internal combustion engine oil accounted for 51.03%, 15.55% and 10.78% of the total product sales respectively, and the combined proportion was 77.36%. Other types of lubricating oils account for 13.63% of product sales and are an important part of the company's lubricating oil products. The sales volume of the company's special solvents accounts for 9.01% of the total product sales, which is an important supplement to the company's lubricating oil products.
The domestic lubricating oil market demand is huge and the competition is fierce. The industrial added value of China was 4.003359 trillion yuan in 2000 and reached 19.967066 trillion yuan in 2012. the development of industrial manufacturing industry led to the continuous growth of lubricating oil demand in China. The demand for lubricating oil in China reached 3.344 million tons in 2000 and 6.8 million tons in 2011, a record high. Since then, the downturn of the domestic industrial manufacturing industry has deepened, and the consumer demand of the lubricating oil industry, as a barometer of the economy, has declined significantly, and the domestic demand for lubricating oil has dropped to 5.698 million tons in 2014. The competition in domestic lubricating oil market is fierce. At present, there are more than 2000 domestic large and small lubricating oil enterprises, with a large number of small and medium-sized enterprises, small scale and poor anti-risk ability. Price war has become a common means of competition, and the industry competition is fierce.
The company is a leading manufacturer of transformer oil in China. Transformer oil is rich in raw materials, mature production process, and has obvious price and performance advantages compared with other insulation cooling media, which determines that transformer oil plays an irreplaceable role. During the 12th five-year Plan period, investment in the national power industry will reach 6.1 trillion yuan, an increase of 88.3 percent over the Eleventh five-year Plan, of which power grid investment is 2.9 trillion yuan, accounting for 48 percent of the total investment. As an important part of power grid construction, the transformer industry will benefit from the planning of power grid investment. The national power grid construction investment planning will promote the development of the transformer industry, and its investment progress will have an obvious impact on the transformer oil market. In 2012, 2013 and 2014, the company sold 63231.57 tons, 46167.11 tons and 46919.95 tons of transformer oil, with a market share of 14.34%, 11.24% and 11.09%. It is an important supporting supplier for Tianwei Wuzhou, Qianjiang Electric and other large domestic transformer manufacturers.
The proportion of internal combustion engine oil in the company has gradually increased, and the product optimization is obvious. In 2012, the company's high-quality diesel engine oil CH-4 15W-40 and CI-4 15W-40 were certified by the American Petroleum Association (API), marking the company's leading advantage in the field of diesel engine oil. In 2012, the company's internal combustion engine oil sales revenue reached 59.3386 million yuan, an increase of 45.13% over the same period last year, accounting for 6.67% of the company's 2012 product sales revenue. In 2013, the company's internal combustion engine oil sales revenue was 81.6416 million yuan, an increase of 37.59% over the same period last year. The proportion reached 10.12%. In 2014, the company's internal combustion engine oil sales revenue was 105.2902 million yuan, an increase of 28.97% over the same period last year, accounting for 13.62%. The proportion of internal combustion engine oil in the company has gradually increased, and the product optimization is obvious. According to the company's future development strategy, the company will further expand the service oil market of high-quality packaging internal combustion engine oil. The company accounts for a prominent proportion of sales of domestic modern efficient tools and a large proportion of development space in apparent demand.
Raise money to invest. This time, it is proposed to issue 22.3 million shares, with an investment of 165.45 million yuan. 131.05 million yuan will be invested in project 1, "annual output of 60, 000 tons of high-quality lubricating oil", 7.764 million yuan in project 2, "enterprise R & D center construction project", and 26.636 million yuan in project 3, "marketing and after-sales service network construction project". After the fund-raising investment project is put into production, it will improve the company's financial structure and increase the company's market share. After the project reaches full production, the company will add 706.9538 million yuan in sales income and 52.6748 million yuan in net profit every year, with good economic benefits. The company's overall production capacity of lubricating oil products has increased from the current 121600 tons to 168800 tons, with a significant increase in market share, which will increase from the current 1.47% to 2.96%.
Profit forecasting and pricing. We believe that the company will maintain steady growth. According to the 10% growth rate of the industry, the operating income in 2015 and 2016 is expected to be 994 million yuan and 1.094 billion yuan, the net profit is 38.53 million yuan and 42.38 million yuan, and the diluted EPS is 0.43 yuan and 0.48 yuan. According to the average valuation of the company's Songfa shares and Great Wall Group in the same industry, it will be given 20-25 times PE in 2015, corresponding to a reasonable range of 8.60-12.00 yuan. If calculated according to the amount of capital to be raised by the company and adding various issuance fees, the minimum issue price for full raising is 189.55 million yuan, and according to the issued share capital of 22.3 million shares, the minimum issue price for full raising is about 8.50 yuan.
Risk hint. The adverse impact of the decline in crude oil prices on business performance; the risks brought about by rising prices of major raw materials; the risks brought about by the company's high procurement concentration; and the risks brought about by macroeconomic policy adjustments, sales strategies and marketing forces.
