Profit reversed, with a year-on-year increase of 20 times in the fourth quarter

In 2015, the company achieved operating income of 10.075 billion yuan, an increase of 23.61% over the previous year; net profit attributable to owners of the parent company was 12.5 million yuan, a year-on-year decrease of 46.6%; basic earnings per share was 0.04 yuan. In the fourth quarter, the company achieved net profit of 54.15 million yuan, an increase of 1988% over the previous year, turning losses month-on-month into profits. The company plans to transfer 20 shares and pay 0.13 yuan (tax included) in cash for every 10 shares per year.

Actual profit exceeded 100 million dollars in 2015, and a sharp increase in performance in 2016 is a foregone conclusion

In 2015, the RMB depreciated 6% against the US dollar, and the company lost 130 million yuan in exchange. Without considering this impact, actual net profit was about 110 million yuan, an increase of over 300% over the previous year. In 2015, lead processing fees rose from 1,700 yuan/ton to 2,700 yuan/ton, and in January 2016, it had already risen to 2,900 yuan/ton. The company's lead smelting cost is 20% of the lowest in the industry. Currently, the full cost is about 1,900 yuan/ton. In the future, with financial expenses falling, there is still room for the cost to drop by more than 200 yuan/ton. The company's smelting production capacity is 400,000 tons. Based on this calculation, lead smelting will achieve a profit of about 400 million yuan in 2016, and a huge increase in performance is a foregone conclusion. Currently, foreign processing costs are equivalent to RMB 3,000 per ton or more, and we expect smelting and processing costs to run at a high level in 2016.

Seize the lead distribution channels, and the prospects for recycled lead are bright

In the next 3 years, a large number of small and medium-sized recycled lead enterprises in China will be eliminated due to environmental issues, and the number of enterprises is expected to be reduced from 200 to less than 10. The company, as an industry leader, will benefit from this. Recycling channels are the core competitiveness of renewable resource enterprises. The company will invest in the construction of a “waste lead-acid battery recycling network system” covering 6 provinces to establish a nationwide waste lead-acid battery recycling network. It is estimated that the recycling volume will reach 720,000 tons. In the future, China's recycled lead corresponds to a profitable market size of more than 5 billion yuan. The company is expected to gain more than 20% of the market share with technological and channel advantages, and the profit prospects are bright.

Give a “buy” rating

Considering the maximum share capital dilution (fixed increase completed in '16), we raised the company's EPS for 16-18 to 0.75 yuan, 1.10 yuan, and 1.45 yuan. Given that the company's primary lead profitability has been reversed, and a sharp increase in performance in 2016 is a foregone conclusion, the prospects for the recycled lead business are bright. We continue to maintain the reasonable value of 20.50 yuan previously given, corresponding to 27 times the PE in 2016, and gave it a “buy” rating.

Risk Reminder

Lead smelting and processing costs have fallen, and implementation of environmental protection policies for recycled lead has fallen short of expectations.