Main points of investment:
The company is a manufacturer of core components such as engines and transmissions.
1) the company, formerly known as the 120th state-owned factory, was founded in 1948 and merged into Changan Group in 2008; in 2012, Aviation Industry Corporation of China transferred his shares of the company to Changan Group, Changan Group became the controlling shareholder of the company, and Armament Group became the actual controller. 2) the company is mainly engaged in engine and transmission two categories of products, supporting models are mainly MPV, micro-passenger, light truck, etc., supporting car companies are BAIC Zhuzhou, BAIC Changhe, BAIC Futian, Changan Automobile, FAW Jilin, Changan Crossing, Baoding Changke, Fuqi New Longma and so on.
The financial situation continues to improve, and the inflection point of performance is basically established.
1) after the troughs of 2012 and 2013, the company's financial situation began to improve in 2015. revenue growth reached 97% in the first half of 2016, and the performance inflection point was basically established. 2) the rapid revenue growth was mainly due to the accelerated promotion of M-series engines used in MPV products, while the customer platform was transformed into BAIC, BAIC Foton, and Changan Group, and benefited from hot sales of supporting models such as Changan Auchan, BAIC Weiwang, Changan CS35 and CX70.
Adapt to the market demand and speed up the development and introduction of high-tech products
1) while maintaining the transformation and upgrading of products and market, the company speeds up the research and development and promotion of turbocharged engines and automatic transmission related products. 2) because of its dual advantages of fuel saving and power enhancement, turbocharged engine has become one of the important choices for energy saving and emission reduction in the automotive industry. According to Honeywell International Inc's prediction, by 2020, the penetration rate of turbocharged new cars in China will reach 47%. Sales will reach 15.5 million. The company's DAM1.2T turbocharged direct injection engine is expected to be supplied in bulk in the first half of 2017, and the later 1.5T engine is also expected to be available in 2018. Turbocharged engines are expected to become another growth pole of the company's performance. 3) with the improvement of consumption level and the increasingly serious problem of urban congestion, the application proportion of automatic transmission in automobile is increasing day by day. According to the forecast of China Gear Association, the proportion of domestic automobile automatic transmission will exceed 50% by 2020, of which multi-gear AT accounts for 23%. Based on the production of 33 million vehicles and 87% passenger vehicles in 2020, the output of multi-gear AT will reach 6.5916 million. Dongan Mitsubishi 6AT gearbox is expected to start supply in the second quarter of 2017, the first phase is expected to be equipped with Zhongtai T600, the follow-up is expected to support Changan, BAIC and other customers.
One of the potential targets for the reform of military industry
According to public information, the Armament Group is actively developing the economy of mixed ownership, formulating a preliminary pilot plan for the mixed reform of military enterprises, and carrying out research and demonstration on the securitization of military assets. We believe that the company, as a listed company with a small market capitalization under the military uniform, is expected to benefit from the military equipment reform in the future.
Profit forecast, give "overweight" rating
We believe that, on the one hand, the company will speed up the promotion of M-series engines used in MPV, and the main business will continue to grow; on the other hand, the company will speed up the research and development and promotion of turbocharged engines and 6AT transmissions, and the new products are expected to become performance growth boosters, at the same time, the company is expected to benefit from the national reform of the Armament Group. It is estimated that in 2016-18, the company's operating income will be 23.373.422 billion yuan, an increase of 85.46 billion yuan over the same period last year, and its net profit will be 0.87pm 1.37 billion yuan, with an increase of 272 percent over the same period last year. The corresponding EPS is 0.19, 0.30, 0.39 yuan per share, and the first time coverage will be given to "increase holdings".
Rating.
Risk tips: Changan, BAIC matching model sales decline; new product promotion is not as expected; raw material price fluctuation risk.