Main points of investment
China's largest military supplies light industrial production enterprise, military orders resume to improve profitability: Jihua Group is the largest military supply light industrial production enterprise in China, with a market share of about 70%. The company has professional clothing, textile printing and dyeing, professional shoes and boots, protective equipment of the whole industry chain manufacturing plate, as well as its own high-end outdoor leisure brand "JH1912".
As of the first half of 2016, the company's revenue was 11.88 billion yuan, up 3.46% from the same period last year, including 3.98 billion yuan from civilian products (34%), 3.32 billion yuan from military products (28%), and 4.72 billion yuan from trade (without deducting the internal offset). Revenue growth mainly came from the increase in military orders, up from 2.722 billion yuan in the same period in 2015 to 33. Billion, an increase of 21.96 percent over the same period last year. Due to the fierce market competition, the gross profit margin of the company's civilian orders is about 8-10%. Although the gross profit margin of military orders has declined due to the reform of the military procurement system, it is still above double digits, and the recovery of military orders and the proportion of revenue have increased. As a result, the overall profit level of the company has increased.
From the demand side, China's defense budget is expected to maintain growth in 2017, while entering the single integrated functional clothing and supporting product R & D and preparation period, the demand quantity and product structure of munitions will change, and precepts will bring new opportunities to the company. The company also actively promotes the research and development capability of new products, and there is no cooperation among external enterprises with technological advantages. The company announced on March 17 that Zhuhai Guangzhong Technology will not sign a strategic cooperation agreement. It will carry out research and development, achievement transformation and industrialization cooperation in the field of individual soldier protection technology, building optical energy-saving protection, other new materials and overseas business cooperation.
JH1912 is a high-end leisure outdoor brand built by the company, with 50 terminal stores (including 25 new ones) by the end of 2015, with revenue of 32.9 million. At present, it accounts for a small proportion of the company's revenue and has a limited impact on the company's performance. However, with the implementation of private placement, the terminal expansion of JH1912 will accelerate. According to the announcement of the plan, it is planned to open 500 "JH1912" physical stores in the form of purchasing and leasing commercial center shops, of which 100,400 are planned to be purchased and leased, and the number of offline terminals will be greatly increased.
The "Jihua Garden" project has made steady progress to create a leisure sports and commercial shopping complex to form a new income growth point:
The company's "Jihua Garden" project is moving forward steadily to build a commercial complex featuring commercial shopping and leisure sports, and improve the company's business income structure. In the reserve of leisure sports, since 2017, the company has not signed a strategic cooperation agreement between Walltopia and the Air Traffic Control Center of the State Administration of Sports, which is conducive to speeding up the promotion of sports in the inter-company Huayuan project. The company's private placement has been approved by the CSRC, issuing 535 million shares at a price of not less than 8.19 yuan, and raising a total of no more than 4.4 billion yuan, mainly for the construction of Chongqing, Changchun, Yangzhong, Xi'an, Xianning and Qingjin projects. with the implementation of non-public additional issuance until the funds are in place, the Jihua Garden project is expected to accelerate. At present, Chongqing Jihua Garden leisure sports projects have been opened to the public during the National Day holiday last year, including indoor surfing, indoor rock climbing, air skiing and other sports leisure projects. The first phase of the shopping mall is expected to open on May Day this year. Other formats, including skiing, are still under construction.
The company is rich in land reserves + government subsidies, and its performance is guaranteed. In addition to the main business profits brought by military and civilian orders and trade, from 2013 to 2016, the company successively disposed of its subsidiaries located in more than 1200 mu of urban land, and the cumulative disposal income is expected to be about 2.9 billion yuan (before taxes). From 2013 to 2015, the non-operating income was 606 million, 1.179 billion and 1.794 billion respectively, which contributed significantly to the performance. According to the latest financial report, non-operating income reached 976 million yuan in the third quarter of 2016. The company has abundant land assets in recent years, and the income from land disposal and government subsidies further protect the company's performance.
The management is selected and hired by the market, the incentive mechanism is improved, and the efficiency is expected to improve. Xinjihua Group, the controlling shareholder of the company, is one of the pilot projects carried out by the board of directors to exercise the functions and powers of senior management personnel selection, performance assessment and salary management as the State-owned assets Supervision and Administration Commission (SASAC). At present, the company has completed the market-oriented selection of general managers and other senior managers, set up a market-oriented selection mechanism in the management and adopted the "letter of responsibility for business performance assessment, performance assessment and salary management measures".
The contract management mode is the main content. Through market-oriented selection, performance evaluation and salary incentive mechanism, we look forward to the improvement of the company's operating efficiency and performance.
Investment advice: we expect earnings per share from 2016 to 2018 to be 0.31 yuan, 0.34 yuan and 0.39 yuan respectively. Given the Buy-A recommendation, the six-month target price is 13 yuan, equivalent to a dynamic price-to-earnings ratio of 38 times 2017.
Risk tips: disarmament expectations, clothing orders do not meet expectations; Jihua Garden project does not meet expectations.
