Main points of investment:

The company's main business is divided into four major sectors: textile and clothing-based import and export trade business, automotive textile-based interior decoration business, new textile materials business and real estate leasing and property services. (1) steady growth of main business: in the past three years, the compound growth rate of main income was 4%. In 2015, the net profit of home ownership increased by 15% compared with the same period last year; in 16 years, the net profit of Q1 increased by 123% compared with the same period last year, and the non-net profit of mother deduction increased by 46% over the same period last year. The substantial increase in net profit comes from the increase in the main gross profit margin and the increase in investment income brought about by mergers and acquisitions. The company's reported results are expected to exceed expectations. (2) focus on the development of high-growth automobile interior business and high-margin textile new materials business: in 2015, the gross profit margin of trade business is 5%, the gross profit margin of automobile interior decoration is 13%, and the gross profit margin of new textile materials is 25%. Trade income accounted for 79% / gross profit accounted for 56%, automobile interior and new textile materials accounted for 20% / gross profit accounted for 39%. During the 13th five-year Plan period, the profit contribution of the company's automobile interior and textile new materials is expected to exceed that of the trade business.

The actual control is the Shanghai SASAC, which is expected to benefit from the comprehensive implementation of the reform of state-owned enterprises, and the company is expected to inject high-quality assets into the group. (1) the reform of state-owned enterprises in Shanghai is expected to accelerate significantly in the second half of 2016: recently, the pilot reform of state-owned enterprises has been rolled out in an all-round way, and Shanghai, as a pioneer in the reform of local state-owned enterprises, is expected to speed up significantly in the second half of 2016. (2) Shanghai SASAC has made preparations for the company's reform: there are only two listed companies under Shanghai Textile Group, the controlling shareholder, and the asset securitization rate is less than 30%. In April 2015, SASAC transferred its 49 per cent stake in the textile group to Shanghai Guosheng, one of the only two state-owned asset liquidity platforms in Shanghai, and SASAC prepared for the reform of its enterprises. (3) as one of the only two listing platforms under the textile group, the first quarterly report has disclosed that there may be a high-quality asset injection into the group.

With the development of all kinds of business, the automobile interior is growing the fastest, and the future goal is to "create the first automotive textile interior in Asia". (1) the company's import and export business income has grown at a compound growth rate of 4.4% in the past five years, and the company has decided to transform into a self-owned supply chain integrated service provider: the company has set the goal of learning from Li & Fung and developing into an one-stop supply chain service provider. The plan is to take mergers and acquisitions as a breakthrough to rapidly increase the scale and bargaining power in the entire supply chain. (2) benefiting from the development of the automotive industry and the rapid growth of automotive interiors, resources will be integrated to build a global production platform in the future: the company's automotive interior products include car carpets, roof interiors, seat belts, etc., mainly supply Shanghai Volkswagen, BMW, Mercedes-Benz and other companies. In the past five years, the compound growth rate of business income is 16%, and the gross profit margin is stable between 11% and 13%. It is expected that the business will continue to develop rapidly in the future. In turn, the overall profit of the company continues to rise. (3) the average gross profit of new textile materials is more than 20%, which is a new business cultivated by the company: the implementing body, Shenda Kebao (95% owned by the company) is a high-tech enterprise, and the main products such as biogas film, building film, waterproof membrane and so on have high added value. The revenue of the business in 2015 is only 200 million yuan, so it needs not only benefits but also scale in the future, looking for new profit growth points. This fixed increase extends to carbon fiber and other fields, after a certain training period, the future large-scale income can be expected.

It is expected to benefit from the reform of state-owned enterprises in Shanghai, the group is expected to inject high-quality assets, the main industry is growing steadily, focusing on the development of high-growth automobile interior business and high-margin textile new materials business, and continuous extension mergers and acquisitions, covering the first time to increase the holding rating.

The company plans to raise 1.25 billion yuan to invest in carbon fiber and its prepreg production project, Shenyang and Ningbo automobile decoration business project, acquisition of 100% equity project of PFI (an excellent American home textile design and sales company) and acquisition of 35% equity project of NYX (American automobile interior manufacturer and first-class supplier of automotive hard interior products). The controlling shareholder, Shenda Group, subscribed 31%, with a lock-up period of 3 years, demonstrating its confidence in the development of the company. We estimate that the EPS of 16-18 years is 0.32 PE35 0.38 Universe 0.43 yuan, corresponding to 16-year PE35 times and 17-year PE30 times. With the expectation of state-owned enterprise reform in the same industry, the average PE of the company is between 40 and 55 times. Taking into account the broad prospects of the company's automotive interior decoration business, the high profitability of the textile new materials business and the expected continuation of epitaxial mergers and acquisitions, we believe that the company's PE is more reasonable between 40 and 45, with a target market capitalization of about 10 billion, covering and increasing the holding rating for the first time.