Main points of investment:
The cost advantage of the main chemical industry is significant, the gross profit margin is in the lead, and the price increase drives the high performance growth. 1) the company is the leader of chlor-alkali industry in Inner Mongolia, relying on regional resources to establish a significant cost advantage, the main cost items of chlor-alkali chemical industry are electricity and calcium carbide, the company is located around Wuhai rich in coal and limestone resources, a large number of low-cost thermal coal for the company's own power plant supply, high-quality limestone is used to produce low-cost high-quality calcium carbide. 2) the company's gross profit margin has steadily increased and continues to lead the industry, with 16Q1-3 rising to 39.7% and power generation gross margin 16H1 as high as 58.9%. In addition, the company has formed a complete integrated circular economy industrial chain to achieve efficient local conversion of resources and energy, and further optimize management efficiency. 3) the sharp rise in prices such as PVC and caustic soda since 16Q1 has driven the company's continued high growth. According to the performance forecast, the upper limit of 16Q4's net profit per quarter is 689 million yuan, month-on-month + 90%, year-on-year + 316%, and an annual pre-increase of 70%. The stabilization of the economy in 2017 and the promotion of supply-side reform are expected to drive product prices to pick up continuously, and the company's performance is highly resilient.
Strategic investment in scarce insurance groups, private capital-driven insurance business to accelerate development. Huatai Insurance is one of the only 12 insurance group licenses in China, and the license plate is extremely scarce. Huatai Insurance Group's property insurance, life insurance and insurance asset management businesses are highly competitive: 1) Huatai property insurance is one of the few medium-sized property insurances in the industry that have achieved underwriting profits for five consecutive years (with an average comprehensive cost rate of 98.45%); 2) Huatai Life Insurance has a healthy business structure (70% of premiums come from high-value insurance channels) and has entered a stable profit cycle. 3) Huatai capital management market-oriented competitiveness industry leading:
91% of the assets under management come from third parties, which is significantly higher than that of the industry. Junzheng Group currently holds 15.3% of Huatai Insurance. Upon completion of this transfer, it will hold 22.3% (with a total of 36.38% with concerted actors), making it the largest shareholder of Huatai Group. The vitality of private capital is expected to accelerate the development of Huatai Insurance business.
The forward-looking layout of insurance / funds / banks / securities continues to benefit from stable investment returns. Listed companies are very forward-looking in their investments in the financial industry, and currently hold 15.3% of Huatai Insurance (22.3% after the completion of this transfer), 15.6% of Tianhong Fund, 3.99% of Wuhai Bank and 0.83% of Guodu Securities.
The insurance / fund / bank / securities firms invested by the company are all licensed financial institutions with scarcity, which brings a solid foundation for the valuation of listed companies: 1) in the current environment of overall tightening of financial supervision, the license value of licensed financial institutions is prominent, among which the insurance group license is highly scarce. 2) licensed financial institutions have strong profitability, and even listed companies with pure financial investment can benefit from stable investment returns.
Investment suggestion: the company's main chemical industry relies on regional resources to establish a significant cost advantage. The sharp rise in prices of PVC, caustic soda and other products since 16Q1 drives the high growth of the main business performance. With the recent completion of the equity transfer of Huatai Insurance, the company will become the largest shareholder of Huatai Insurance (with a direct stake of 22.3%). As a highly scarce insurance group, Huatai's property insurance / life insurance / insurance assets management are all high-quality companies with stable profitability. and there is a lot of room for development. Assuming that Huatai equity transfer is completed in 17 years, the annual net profit of Huatai in 16-17-18 is expected to be 1.56 and 1.84 billion yuan, corresponding to an EPS of 0.18 and 0.22 yuan. According to the segment valuation method, the reasonable valuation of the company is 46.33 billion yuan, corresponding to the target price of 5.50 yuan, the current valuation has a high margin of safety. Coverage for the first time, giving the company an "overweight" rating.
Risk tips: 1) chemical products (PVC, caustic soda) prices fall; 2) sustained low interest rates bring life insurance business spread losses; 3) the transfer of Huatai Insurance equity is subject to the approval of the CIRC.
