Incident: The situation on the Korean peninsula continues to be turbulent. The US continues to exert pressure through various channels, North Korea also continues to maintain a tough response, and the possibility that both sides will catch fire is increasing. Stimulated by this incident, as a leading military goods company, the company's cumulative increase from April 7 to now has reached 17.55%.
The shareholders are strong and the industry has a deep background. Jihua Group is the largest manufacturer of military light industrial products in China. It is the main manufacturer and supplier for unified clothing departments and industries and other professional clothing units in China. The controlling shareholder is Xinxing Jihua Group, with a shareholding ratio of 66.33%, ranking in the top 50 of the central enterprise bloc.
A leader in the military goods industry. The profitability and order growth rate of the military goods business bottomed out in 2016, and is expected to achieve both profitability and order size growth in 2017. As the only supplier of a full range of military products in China, the company has the ability to provide a full range of products, full war zone coverage, and full-process service, accounting for 70% of the military light goods market. In 2016, the bidding method was changed to a comprehensive bidding law. The company can benefit from competition with strong R&D strength and comprehensive supply guarantee capabilities. After 2017, the gross margin of military goods orders is expected to gradually recover, and the order size will also increase. It should be specifically pointed out that the company's protective clothing and protective equipment have strong market competitiveness. It has the capacity to produce 20 million pieces of bulletproof vests, helmets, and bulletproof protective gear per year, as well as the ability to produce 150,000 tents, 520,000 pieces of portable equipment, and 300 special vehicles. It has leading technical strength, which can guarantee the ability to supply large quantities in a short period of time. Thematic investment opportunities have emerged.
The fixed increase helped the company transform the modern service industry and create Jihuayuan's unique “1+X” model.
The company's fixed growth project includes an investment of 4.1 billion yuan in Jihuayuan (Chongqing, Changchun, Yangzhong, Xi'an, Xianning, Qingyuan) in the “1+X” new business format. As an organic combination of manufacturing and trade services, it mainly consists of shopping centers, indoor sports centers, hotels and specialty catering services. Unlike traditional shopping malls, Jihuayuan has a unique location. It relies on big cities, yet it is far from big cities, and the investment cost is low. In addition, sports such as indoor surfing, indoor skiing, indoor rock climbing, and indoor skydiving have been introduced, which is conducive to increasing customer stickiness and enhancing the shopping experience. Recently, Jihua Group signed separate strategic cooperation agreements with the Air Traffic Management Center of the National Administration of Sports and Walltopia to cooperate on indoor wind tunnel skydiving projects and indoor rock climbing projects respectively. This move is conducive to enriching business formats, attracting traffic, and shortening the project payback period.
Land disposal proceeds and government subsidies are a useful complement to net profits. Most of the company's enterprises are located in the core area of the city. Combining the local government's plans for entering the city and the development of land assets in the old factory area of the enterprise or the objective requirements of government collection and storage, the company has relocated its production business one after another since 2013, and it is expected that land development income or land disposal revenue of a certain scale will still be realized during the 13th Five-Year Plan period. In addition, the company carried out forward-looking R&D and innovation in projects such as environmentally friendly filter materials, API development, high-end textile technology, protective equipment, etc., and actively applied for government subsidy funds and national special fund support, which provided a beneficial supplement to profits.
Investment advice: The company's earnings per share from 2016 to 2018 are expected to be 0.33 yuan, 0.36 yuan, and 0.42 yuan respectively. The corresponding price-earnings ratio is 31.06 times, 28.47 times, 24.4 times, and the fixed increase price is 8.19 yuan, which has a certain margin of safety. As a leading military goods enterprise, the company has advanced technology for protective clothing and protective equipment, and can guarantee the ability to supply large quantities in a short period of time. Thematic investment opportunities have emerged. Excluding the 66.33% shares held by Xinxing Jihua Group and the 3.55% shares held by Central Huijin, the actual market value in circulation was less than 12 billion yuan, maintaining the “buy” rating.
