Investment logic
Company overview: forestry enterprises reorganize and transform custom furniture business. Since its establishment in 1994, the company has focused on the forestry industry and developed into a forest board integration group enterprise. In 2015, the company acquired a 100% stake in Sengyuan Furniture by issuing shares and cash acquisitions, extending the forest industry chain to the downstream furniture home decoration business. After the completion of the acquisition, the overall performance of the company also received a great boost. In the first three quarters of 2016, the company achieved main business income of 1.1111634 billion yuan, a year-on-year growth rate of 202.22%, and a net profit of 13.4532 million yuan, a year-on-year growth rate of 50.66%.
The rise in fibreboard prices promotes the company's performance, the post-cycle effect of real estate is weakening, and customized furniture is sure to grow. In 2015, the sales revenue of the MDF industry reached 97.728 billion yuan, a year-on-year growth rate of 39.27%. The industry as a whole maintained a steady development trend. We believe that there are five main reasons for the rise in plate prices that began in October last year, namely, environmental protection, forest farm logging restrictions, road transport management, exchange rate decline and demand blowout. In 2016, the overall income of China's furniture industry reached 855.95 billion yuan, an increase of 8.60 percent over the same period last year. On the demand side: 1) We think that the post-cyclical effect of real estate is gradually weakening at the present stage. In this process, second-hand houses and new houses become new sources of demand in the furniture market. 2) at present, China is experiencing the third consumption upgrade, and brand-new furniture consumers are rising. New consumers bring brand-new personalized market demand to the furniture industry. Customized furniture as a product to maximize the personalized pursuit of consumers, we are optimistic about the future long-term development of this furniture subdivision field. According to our estimates, we will maintain an annual growth rate of more than 18% in the future. 3) in addition to the drive of second-hand housing, new housing and consumption upgrading to the furniture industry, the fully decorated housing policy and the promotion of urbanization will expand the market demand of the industry.
The development bottleneck has been effectively broken, and the company's performance has regained its momentum. Company advantages: 1) the total forest management area of the company is 1.81 million mu. Compared with other industries, the company has outstanding advantages in forest resources. 2) the company has a production capacity of 300000 cubic meters of plate and can provide E1, E0 and "CARB" and "COC" certified products. At the same time, its floor brand "Yonglin Blue Leopard", has won a number of authoritative certification at home and abroad, is one of the top ten flooring brands in China, with excellent brand influence. 3) through the acquisition of Sen Yuan Furniture, the company's seedling planting and plate manufacturing business are more targeted and professional, the two businesses have been upgraded and optimized, and the bottleneck of the company's development has been broken through. Performance driven: 1) the company is one of the top five raw material suppliers of Jiangshan Oupai wooden doors. On December 1, 2015, the company signed a procurement contract with Jiangshan Europe and became the core strategic partner of the latter. On February 10, 2017, Jiangshan Europe sent IPO to go public, raising $502 million to expand production capacity. Downstream manufacturers listed to expand production, will help to drive the growth of the company's plate business. According to the conservative estimation of the procurement of raw materials for the investment project disclosed in the Jiangshan European prospectus, the purchasing volume of MDF of Jiangshan European Party Company will increase by 1, 029.84 cubic meters, 1, 379.42 cubic meters and 1, 716.40 cubic meters respectively from 2017 to 2019, corresponding to 1, 3.2387 million yuan, 1, 7.6516 million yuan and 2 yuan respectively., 2.0644 million yuan. 2) Senyuan Furniture is one of the most famous and influential furniture manufacturers in China and even in Asia, with outstanding advantages in production, design, marketing network and so on. In the short term, the company completed a consolidated statement of the annual performance of Senyuan Furniture in 2016, with a corresponding growth rate of 150% per cent. From the medium to long-term point of view, Sen Yuan has launched a high-end civil full-house customized brand on top of the original hotel furniture business. According to the forecast of Sen Yuan Furniture Management, by 2019, Sen Yuan Hotel Furniture Business and hardcover Furniture Business will achieve main income of 1.189 billion yuan and 571 million yuan respectively, with a compound growth rate of 7.98% and 18.93% respectively. Senyuan's custom furniture business will become the main growth point of Yong'an Forestry's medium-and long-term performance in the future.
Valuation and investment advice
We predict that the fully diluted EPS of the company in 2016-2018 will be 0.38 yuan 0.50 pound per share. Considering that the production capacity of customized furniture business will be released quickly after the completion of the company's Dongguan base, we give the company 36 times PE in 2017, corresponding to the target price of 17.9 yuan per share, giving the "overweight" rating for the first time.
Risk.
Macroeconomic fluctuation risk; raw material price fluctuation risk; exchange rate risk.