Key points of investment
Event: Chuangli Group Releases 2016 Annual Report
During the reporting period, the company achieved operating income of 901 million yuan, a decrease of 10.54% over the same period last year, and net profit attributable to the company's common shareholders was 95.9 million yuan, a decrease of 24.09% over the same period last year. It is proposed to distribute a cash dividend of RMB 0.20 (tax included) for every 10 shares to all shareholders.
Ping An's point of view:
Supply-side reforms helped demand for downstream coal machines pick up: Driven by supply-side reforms in the coal industry, small-scale coal production capacity continued to clear, and coal prices experienced a continuous recovery in 2016. The prices of thermal coal around the Bohai Sea were 371 yuan/ton and 593 yuan/ton at the beginning and end of 2016, respectively, and have now basically returned to the 2013 average. Chuangli Group's customers are mainly large and medium-sized coal companies. The removal of small production capacity and the recovery in coal prices have enabled large and medium-sized coal companies to recover their profitability and give them more incentive to renew their equipment. Furthermore, the service life of the coal machine itself is 5 to 6 years, and 2017 is expected to usher in a small wave of replacement. We maintain our judgment that the company's coal machine business is about to reach an inflection point.
The controlling shareholder acquired Huizhou Yineng Electronics, and the NEV layout continued to improve: in line with its own development needs, the company actively promoted transformation and upgrading, vigorously developed the NEV industry, and basically formed an industrial layout for core components such as batteries, motors, electronic controls, charging piles, etc., and NEV operations. Following the establishment of Hefei Chuangda New Energy (Battery PACK) and Shanghai Chuangli New Energy (NEV sales, operation, leasing, etc.), China Coal Machinery, the controlling shareholder of the listed company, completed the acquisition of 57.108% of Huizhou Yineng Electronics's shares on March 6, 2017 (while the company's second-largest shareholder acquired 14.319% of Huizhou Yineng Electronics's shares), and the company's layout in the NEV sector was further improved. Yineng Electronics is committed to the R&D, sales, production and service of power battery systems and battery management systems. It is a professional supplier of electric vehicle power management systems with advanced technology and a high market share in China. If Yineng Electronics is transferred to listed companies in the future, it is expected that the company's performance will be directly enhanced.
Investment suggestions: Supply-side reforms have helped demand for downstream coal machines pick up, and the strategic layout of the NEV sector has been further improved. We maintain our judgment that the inflection point of the company's performance is imminent. It is estimated that the EPS from 2017 to 2019 will be 0.27 yuan, 0.45 yuan, and 0.55 yuan respectively, and the corresponding PE will be 35 times, 21 times, and 17 times, respectively. Maintain a “Recommended” rating. The EPS for 2017-2018 was previously predicted to be 0.30 yuan and 0.45 yuan respectively. This time, the 2017-2018 profit forecast was adjusted mainly because: (1) the comprehensive gross margin for 2017-2018 was adjusted in light of changes in the company's business structure; and (2) financial expenses were re-predicted in line with the 2016 financial report disclosed by the company.
Risk warning: (1) sales of products such as NEV battery packs fell short of expectations; (2) coal supply-side reforms did not continue to advance, and falling coal prices led to a decline in downstream demand; (3) NEV policies have undergone major changes.