Key points of investment

Incident: Gong# Division released its 2016 earnings report: it achieved operating income of 456 million yuan for the whole year, a decrease of 4.59% over the previous year, achieved operating profit of 77.5 million yuan, a decrease of 1.31% over the previous year, and achieved net profit of 66.95 million yuan, an increase of 1.44% over the previous year, and basic earnings per share of 0.73 yuan.

Comment:

The main business remained stable, and the decline in revenue was mainly due to falling unit prices. The company's annual revenue fell 4.6%, mainly because the company adopted a pricing strategy that locked in gross margin. As copper prices continued to be low, the unit price of the product was lower than the same period last year, and it is expected that the company's overall sales volume will remain stable in 2016. As copper prices began to rise continuously in November last year, the company's subsequent revenue growth rate is expected to improve significantly.

The Q4 quarterly results were slightly lower than expected. The company achieved revenue of 113 million yuan in a single quarter in Q4, down 16.0% from the previous year, and achieved net profit of 17.18 million yuan to the mother, down 17.0% year on year, lower than our expectations.

Since the company's customers are mainly large construction contractors or trading companies on the B-side overseas, the customer concentration is high. Considering that demand in the overseas valve and pipe fittings market is relatively stable, we believe that the decline in revenue in the fourth quarter was mainly due to seasonal fluctuations in downstream customer operations.

Mergers and acquisitions of media companies are progressing in an orderly manner, and a dual business pattern will be formed in the future. Since the company stopped planning mergers and acquisitions in December last year, a series of progress has been made on related matters. The company signed a “Framework Agreement for Issuing Shares to Purchase Assets” with Zheng Bo, the controlling shareholder of Hongfang Culture, in February. The target business is integrated operation of the IP ecosystem. If the merger and acquisition is successfully completed, the company will form “plumbing equipment+media”

The dual main business pattern has contributed new profit growth points.

Investment advice:

The company is an excellent domestic supplier of domestic plumbing equipment. Currently, 90% of its products are exported, overseas customer resources are abundant, and it has developed a good market reputation and reputation. Domestic valves have an annual output value of 60 to 70 billion dollars, and the market has good prospects for development. In the future, the company will increase its development efforts in the domestic sales market, and there is room to expand in the direction of civil building systems in terms of categories.

Management is forging ahead and actively expanding its second main business. Currently, media company mergers and acquisitions are progressing in an orderly manner, and if successfully implemented, future growth will further increase.

Without considering epitaxial mergers and acquisitions for the time being, we expect EPS to be 0.67, 0.80, and 0.95 yuan respectively in 16-18, giving it an “increase in holdings” rating.

Risk warning: Overseas import policies have changed, and the progress of mergers and acquisitions has fallen short of expectations