Relying on the superior resources of rare metals, open up the aviation manufacturing industry chain according to the company announcement, the traditional main mining and dressing industry has stopped production due to the low price of molybdenum fine powder, and the molybdenum-rhenium separation project has the production capacity. Relying on its own unique rhenium metal resources (176.1 tons of rhenium metal reserves, accounting for about 7% of the world's proven reserves), the company actively develops aviation manufacturing related industries. At present, the specific business is concentrated in the subsidiaries Chengdu Aerospace, Zhongke Hangfa and Lang Xing UAV.
Through the Thousand talents Plan, ① Chengdu Aerospace has introduced a number of world's top experts such as Wang Lizhi and Li Cangxiao, and has successfully developed two kinds of superalloy base materials, based on which equiaxed crystal, directional crystal, single crystal aviation and gas turbine blades have been successfully developed and reached the level of the fourth generation single crystal blades, and the first batch of single crystal blades have been put into use in mass production and achieved certain sales revenue. At present, Chengdu Aerospace Project has built a total production line with an annual output of 80 tons of rhenium and a production line with an annual output of 55,000 single crystal turbine blades. The company has obtained EN 91002009 (technology equivalent to AS9100C) internationally recognized quality management system certification for aerospace and defense organizations, marking the entry threshold for the company to enter the supply chain of the international aviation industry. According to the announcement, there are small batch certification orders for single crystal blades, national military standard certification and international customer certification are under way, and a contract can be signed after certification, which is expected to pass verification and achieve mass production in the next 1 to 2 years. Superalloy and rhenium-containing single crystal blades may become high-speed growth points for the company's profits in the future.
② China Science and Technology Aviation Development is jointly established by the Institute of Engineering Thermophysics of the Chinese Academy of Sciences and the joint strategic investors of stone refining and non-ferrous metals. In the future, it will build a 750kg thrust turbofan engine assembly line that meets the requirements of the new national military standard. By 2020, it will form an annual assembly capacity of 150 independent intellectual property rights of 750\ 1000\ 1250kg thrust turbofan engines.
③ Langxing UAV, jointly funded by the Chinese Academy of Sciences, Lianshi Nonferrous, Shenzhen Shunfeng and Suzhou Yuanhe, is engaged in the development of high-grade and large-tonnage series of military / civilian UAV. The first UAV under development plans to start the construction of the final assembly plant of UAV in 2017. It is estimated that by 2020, the annual production capacity of UAV (army / civilian) will be 40, and by 2025, the annual production capacity of UAV (army / civilian) will reach 60, and the UAV system operation service capability will be improved.
④ has significantly benefited from policy support such as the national two-machine project. The Chengdu International Aviation Power Industry Project Special Construction Fund declared in Shuangliu District has passed the preliminary examination of the National Development and Reform Commission and is included in the national special construction fund support plan. the project is cooperated by the Institute of Thermophysics, Stone Refining Nonferrous and other R & D institutions and enterprises of the Chinese Academy of Sciences, with a total investment of 15 billion yuan and a plan to apply for a national special construction fund of 2.25 billion yuan.
Cash acquisition of Gardner, continued layout of high-end aviation manufacturing
The company intends to issue no more than 112 million shares and raise no more than 326 million pounds (2.793 billion RMB) for the acquisition of British Gardner. Before the funds raised are in place, the company will invest in them first and replace them after the funds raised are in place. The actual shortage of funds raised will be solved by the company through its own funds, bank loans or other means.
Gardner's main business is the production, processing, assembly and maintenance of aerospace parts, and its main products are aircraft and engine parts, including the leading edge of the wing, engine-related components, take-off and landing equipment, oil pump cover and other core components, mainly used in the Airbus A320 family, A330, A350, A380 and other aircraft, Airbus sales accounted for 67% in 2015. Gardner has 10 production sites around the world, mainly located in nearby core aircraft manufacturer customer locations and low-cost countries such as India, to make its products more competitive.
With the gradual localization of the large airliner industry chain, the demand for spare parts will increase greatly. The transfer of the aircraft manufacturing industry to a large country in demand for civil aircraft has been accelerated. The wings, cabin doors and maintenance tools of Airbus 1ax 4 are produced in China, the parts of Boeing Co 1ax 3 are produced in China, and the Airbus A320 production line has been settled in Tianjin. Boeing Co will also settle in Zhoushan. Airbus asked for Gardner tracking services to China and promised to help the merger pass the French Ministry of Economic Affairs.
From January to October in 2014, 2015 and 2016, Gardner revenue was 1.176 billion, 1.152 billion and 1.073 billion in RMB terms, and its net profit was 72 million, 134 million and 114 million; in sterling terms, revenue in 2015 was 24.77% higher than that in 2014, and revenue in 2016 was 18.10% higher than that in October (due to the weakening of the pound against the renminbi during the reporting period).
Through this merger and acquisition, the company's advantages in rare metal resources and products transformed from Chengdu aerospace superalloy materials and single crystal turbine blades can open up European and American markets through Gardner; Gardner can open up the Chinese market and expand its global business territory with the support of the company, or will build a factory in China, not excluding cutting into the large aircraft and military aircraft industry chain. The company has established a complete industrial chain covering rare metal mining and refining, superalloy smelting, engine and turbine high-temperature blade manufacturing, UAV engine design and manufacturing, UAV machine design and manufacturing and supporting service system, the target company Gardner has significant synergy with the original industry, which will further enhance the company's sustainable development and profitability.
Investment advice:
Assuming that the company completes the acquisition in 2017, taking into account the loss of the traditional main business and related financial expenses, we forecast that the company's net profit in 2017 and 2018 will be 167 million and 233 million respectively. Assuming that 112 million shares are raised, the total equity will be 672 million, and the corresponding EPS in 2017 and 2018 will be 0.21 yuan and 0.36 yuan respectively. In the short term, the company's performance mainly depends on the acquired Gardner contribution, and before the funds raised are in place, the increased financial expenses will have a certain impact on the company's performance (we are based on the assumption in the company announcement that 2.793 billion of the funds raised will bear interest on June 1, 2017, the comprehensive annual capital cost is 4.80%, and the replacement of raised funds to self-raised funds will be completed on September 30, 2017). Short-term valuation does not have an advantage. However, considering that the business of engine blades, engines and drones will gradually form mass production capacity, we believe that the company's comprehensive strategic layout of the aviation industry chain has a good development prospect, giving the Buy-An investment rating for the first time, and the 6-month target price is 23.4yuan. corresponding to 2017 and 2018 111x and 65 times pe respectively.
Risk hint: the development of the aviation industry is not as expected; the acquisition fails.