Low market capitalization + undervaluation + potential catalysis = cross-year Alpha with high safety margin
Black sesame currently has a market capitalization of 4.9 billion yuan. We expect the company to complete the restricted stock plan and deduct 250 million yuan in non-return net profit in 2017 is a high probability event, corresponding to the current dynamic valuation of only 20xPE, with a high margin of safety. The undervalued reasons include the termination of extended M & A projects this year and the high pressure on gambling conditions to achieve restricted stock results in 2016. at the same time, the market is biased against black sesame's choice to enter segments of industries with high stability but relatively low growth elasticity, including selenium rice, edible oil and oats. The catalysts that promote the market to re-recognize the value of black sesame in the future include the better-than-expected performance of 16Q4, the promotion of new 17Q1 products and the landing of new extension projects of 17H1.
Underestimated reason: the termination of this year's extension expansion and the industry attribute of the expansion direction
The reasons for the underestimation of black sesame include the termination of extension expansion projects in 2016 and the low growth elasticity of the company's chosen expansion direction. First of all, the termination of this year's extension expansion project and the pressure on the realization of the performance conditions of the annual restricted equity incentive caused investors' concern. The Jinri edible oil project was terminated because the target involved a number of debt guarantees and litigations. the failure of the merger of the project's income of 400 million yuan and net profit of 55 million yuan led to greater pressure on the achievement of gambling conditions in the 2016 performance of the restricted stock incentive plan. Secondly, black sesame chooses segments such as selenium-rich rice and edible oil in the direction of new business development, and these areas are generally considered by investors to be highly stable, but less flexible traditional food industry, with less room for imagination.
Catalysts for revaluation: better than expected performance of 16Q4, new products of 17Q1 and extension of 17H1
We believe that the catalysts for market revaluation of black sesame in the next three quarters include, but are not limited to, the higher-than-expected performance of 16Q4, the better-than-expected promotion of new 17Q1 products and the landing of 17H1 extension projects. First of all, the current market consensus on the performance of the whole year of 16 years is under great pressure on the realization of gambling conditions, but in view of the peak sales season of the main product black sesame paste, there is the possibility of sales exceeding expectations. Second, the company plans to launch new products in 17Q1 that are more in line with the tastes of young consumers, as a complement to traditional products that are more targeted at middle-aged and older consumers. Thirdly, the Golden Day Edible Oil Project ends the medium-and long-term strategy of expanding and enriching the category of black sesame seeds in the future, and the landing of the new 17H1 project is also expected to promote the market revaluation of black sesame seeds.
Significantly undervalued by the market, three potential catalysts promote the return of value and upgrade to the "buy" rating
Considering that black sesame is undervalued by the market due to the termination of mergers and acquisitions and industry attributes, there is a potential revaluation catalyst in the next three quarters, we slightly adjust black sesame's profit forecast and upgrade the stock rating to "buy". According to our profit forecast, from 2016 to 2018, the income of black sesame reached 2.374 billion yuan, 2.92 billion yuan and 3.362 billion yuan respectively, the net profit of returning mother reached 151 million yuan, 200 million yuan and 232 million yuan respectively, and the EPS was 0.24,0.31 yuan and 0.36 yuan respectively. According to the valuation of comparable companies, the endogenous growth brought about by black sesame product innovation and the category expansion brought about by epitaxial expansion, we give black sesame 35-38 times PE in 2017, with a target price range of 10.85 yuan to 11.78 yuan.
Risk tips: sales growth of the main product black sesame paste is lower than expected; the progress of new product promotion is not as expected; the progress of extension expansion is not as expected; food safety issues.
