Main points of investment:
Event: recently, the company announced its quarterly report for 2017: revenue is about 460 million yuan, an increase of 80.2% over the same period last year, and its net profit is about 41.56 million yuan, an increase of 1522% over the same period last year.
Comments:
The volume and price of cement rose in the first quarter, and the income increased significantly. In the first quarter of 2017, the cement output in Tibet was about 1.27 million tons, an increase of about 87.2 percent over the same period last year. The company actively improves the operation rate of equipment and expands its market share, and cement production and sales have increased in the first quarter. In terms of price, the average price of taxable cement in Tibet in the first quarter was about 770 yuan per ton, an increase of nearly 200 yuan per ton over the same period last year. The company's revenue grew by about 80.2% in the first quarter, a sharp increase of 59.1 percentage points over the fourth quarter of 2016.
In the first quarter, the gross profit margin improved significantly, the expense rate decreased slightly, and the profit level increased significantly. In the first quarter, the average price of cement in Tibet increased by nearly 35% compared with the same period last year, and the company's comprehensive gross profit margin was about 30.5%, a sharp increase of 11.0 percentage points over the same period last year. With a substantial increase in revenue, the expense rate was diluted. During the first quarter, the company's expense rate was about 14.7%, down 2.2% from the same period last year, with sales, management and financial expense rates changing by-0.7%,-2.0% and + 0.9% respectively over the same period last year. The company's net profit margin was about 13.6% in the first quarter, up 11.9 percentage points from a year earlier.
The construction of the new line is completed ahead of schedule, and the profit is highly flexible. At present, only Huaxin cement and the company has a new line planning in Tibet, in which the company's 4000t/d production line was completed ahead of schedule in April 2017 (originally scheduled to be put into production in September 2017) and is now in the stage of production and commissioning. After the new line is put into production, the company will increase its equity clinker production capacity by about 30%, and the new production capacity is expected to drive the company's profits to continue to grow substantially.
The high growth of demand in Tibet in 2017 is expected to continue, and the economy is expected to remain high. Infrastructure and other supporting facilities in Tibet are relatively weak, and the growth rate of regional investment has maintained a high level for a long time. From 2009 to 2016, the CAGR of fixed assets investment in cities and towns, fixed assets investment in highway construction and cement output in Tibet were 25%, 30% and 19%, respectively. Investment in fixed assets is planned for 200 billion yuan in 2017, an increase of 25% over the same period last year, of which investment in highway construction is planned for 52 billion yuan, an increase of about 30% over the same period last year. Supply and demand will maintain a tight balance, and the economy is expected to remain high.
Maintain a "buy" rating. More than 80% of Tibetan government revenue comes from central transfer payments and tax rebates, and infrastructure investment funds are easy to implement. It is a rare region in the country where the real growth rate of fixed asset investment has exceeded the planned growth rate for a long time. We estimate that the company's EPS in 2017-2019 will be about 0.75,1.01,1.07 yuan, and the target price will be 18.75 yuan for 2017 PE.
Risk hint. Demand fell faster than expected, raw material prices rose higher than expected, and new growth was lower than expected.