Main points of investment
Event: Huafu net chain, a wholly owned subsidiary of the company, recently signed a framework agreement with Xinmian Group to jointly initiate the establishment of Xinjiang Tianfu Cotton supply chain Co., Ltd., with a registered capital of 200 million yuan and 51% of the company's investment.
Increase investment in Xinjiang and build the supply chain of cotton textile industry from the source. (1) Xinjiang Tianfu covers cotton procurement, transportation and trading platform business, and is expected to be listed independently: after the establishment of the joint venture company, the company will have cotton purchasing capacity (four county companies, it has a number of ginning plants), warehousing and logistics capacity (Aksu Station) and trading platform business (Xinjiang Cotton Trading Market) Xinjiang Tianfu has proposed an annual cotton trading volume of 1 million tons (the company currently uses about 300000 tons of cotton per year) and has 100 ginning plants. We believe that Xinjiang Tianfu will help the company control the source of cotton and effectively improve the efficiency of the company's supply chain. (2) ploughing Xinjiang to increase investment, Belt and Road Initiative opened up more room for the industry: the company began to invest in Xinjiang since 2006 and signed an investment project agreement of 5 billion yuan (1 million spindles of color spinning and 60, 000 tons of cotton dyeing) with Hengtian Group and Aksu Regional Administrative Office in July 15. The production capacity of about 200000 tons of color-spun yarn), and announced in August 15 that it planned to establish Xinjiang Huafu Color Textile Group. We believe that Huafu color textile is the deepest and most extensive company in the industry in Xinjiang, with a production capacity of 450000 spindles, in addition to enjoying high-quality cotton resources and the 10 preferential policies given to Xinjiang's textile industry by the state. Belt and Road Initiative Eurasian transportation network construction also provides a broad space for the company to open up markets in Europe, Central Asia and South Asia.
The industrial layout is becoming more and more perfect, the main business strategy is relatively clear, benefiting from the devaluation of RMB and the TPP agreement, highly leveraged employee stock ownership plans provide a higher margin of safety. (1) steady performance growth, using new products to drive the sales of used products, and good inventory removal: the company currently has a total production capacity of about 1.5 million ingots, mainly distributed in Xinjiang, Huanghuai and Zhejiang. The company also has a capacity layout in Vietnam and is expected to reach 300000 ingots by the end of 16 years. At present, the proportion of new and old products is about 50% and 50%. The effect of eliminating new and old inventory is remarkable, and we expect orders to maintain steady growth in the past 16 years.
(2) the layout of the industrial chain is perfect, and it is expected to build a fashion industry supply chain in the future: the company has a layout from cotton procurement to color-spun yarn, and we believe that the company is expected to continue to cut into the upper and lower reaches of the industry in the future. to build the whole industry chain supply chain from cotton to yarn to fabric to clothing. (3) the two-phase employee stock ownership plan provides a higher margin of safety: the company put forward two employee stock ownership plans in May 15 and February 16, with a scale of 200 / 200 million, a leverage of 9 / 3 times, and an average price of 11.47 yuan for the first period. a large proportion of major shareholders and executives in the second phase participate.
The company is the leader of the color spinning industry, the performance growth is steady, the industry layout in Xinjiang is the first to achieve results, the overseas layout is gradually launched, and the follow-up is expected to continue to cut into the upstream and downstream of the industry to build the fashion industry supply chain. Our 15x16 / 17 EPS forecast is 0.42 PE 0.61 yuan, corresponding to the PE is 24-19-16 times, taking into account the company launched the second phase of highly leveraged employee stock ownership plan, the gradual promotion of private offerings, benefiting from RMB depreciation and the TPP agreement, maintain the overweight rating.
