Key points of investment

Transmission line tower leader, leading peers in profitability: The company is deeply involved in the field of transmission line tower products, has high-end series production capacity and qualifications, is a leading domestic private enterprise, and leads peers in profitability. From 2013 to 2015, the company's main business revenue was 598 million yuan, 532 million yuan and 544 million yuan, respectively, gross margins of 22.20%, 21.89% and 25.64%, and net profit of 5.105 million yuan, 41.89 million yuan and 56.78 million yuan.

The industry space is huge, and overseas business has brought new growth points: during the “12th Five-Year Plan” period, power grid investment continued to increase, and the tower manufacturing industry developed rapidly. The compound annual growth rate of the company's net profit from 2011 to 2015 was as high as 49%. During the “13th Five-Year Plan” period, China's power industry investment is expected to reach 7.1 trillion yuan, an increase of 16.40% over the “12th Five-Year Plan”. Transmission lines of 110 KV and above will increase by 430,000 kilometers, and the average annual demand for towers will reach about 4.212,000 tons. At the same time, the company has been actively developing overseas business with a high gross margin in recent years, and successfully realized the Pakistan Electric Power Company's angle steel tower project with a gross margin of 29.96% in 2015, which led to a 32% increase in gross margin in the angle steel tower business that year.

Leveraging the listing to expand production, welcome the industry's take-off: The capital raised from the listing will be invested in the construction of a “transmission line steel pipe tower project with an annual output of 32,000 tons” and a “10,000 ton angle steel tower technical improvement project” to expand existing production capacity and help the company's performance improve again.

Profit forecast: We expect the company's net profit for 2016-18 to be 0.65, 0.80 million yuan, and 94 million yuan, respectively, EPS of 0.56, 0.68 million, and 81 million yuan, respectively. The corresponding PE is 81.2, 66.6, 56.1 times, respectively. It is covered for the first time, and given an increase in holdings rating.

Risk warning: 1. Market competition increases risk; 2. Managing risk 2. Fund-raising project risks