Main points of investment:
Civil, military materials and 3D printing three major business layout. The company is mainly engaged in the research, production and sales of aluminum alloy heat transfer materials and polymetallic composite materials, and the products are widely used in automotive, electric power, construction machinery, home appliances and other fields. The company entered the field of military materials in 2014, participated in the establishment of an industrial M & A fund in 2016, and currently has three major businesses: civil, military materials and 3D printing. Benefiting from the release of new production capacity and active market development in 2016, the company turned from losses to profits, achieving revenue of 1.565 billion (YOY15.01%) and net profit of 7.31 million, an increase of 194 million over the same period last year. In the first quarter of 2017, the company had revenue of 430 million (YOY19.83%) and net profit of 22.05 million, an increase of 30.04 million yuan over the same period last year.
Civil materials business: hope to benefit from the release of production capacity + gross profit margin and operating efficiency. The company is mainly in the field of brazing aluminum rolled materials. At present, the products are mainly customized according to different customer specifications and quality standards, and the production and sales industry ranks in the forefront. According to the prospectus, in 2010, the domestic brazing aluminum alloy clad plate, strip and foil output of more than 30,000 tons only includes the company and Sapa aluminum heat transfer (now renamed Grangis). In 2016, the company's IPO investment project has released production capacity, with an annual capacity of 200000 tons, up from 75000 tons before the listing. At the same time, with the improvement of product structure and the overall management level of the company, the gross profit margin and daily operation efficiency of products are expected to improve in the future. We expect the company's performance to benefit in the next few years.
Military materials business: complete all qualification certification, and continue to open up the military market in the future. In 2014, the company entered the field of military materials and signed a low-cost armored aluminum alloy plate production contract and strategic agreement with the Chinese military material Research Institute. In 2015, it provided technical advice to China Shipbuilding heavy Industry 702 to support product upgrading. In 2016, the company further developed the military material market: won the bid for a certain type of aluminum alloy sheet of the Chinese military Science Research Institute, and signed a "strategic cooperation agreement" with Nanjing University of Science and Technology Institute of Mechanical Engineering, including the research and development of composite protective materials. Won the Silver Award and the highest score in the first China dual-use Technology Innovation and Application Competition.
In addition, the company turned Yinbang Defense into a wholly-owned subsidiary through equity transfer. As the company completes all relevant qualification certification and becomes a formal military R & D and production enterprise, it will take Yinbang Defense as the main platform to continue to promote the development of military-related business.
3D printing business: the products meet the aviation standards and are optimistic about the broad market for sharing large aircraft. The company participated in the establishment of Fei'erkang to enter the field of 3D printing in 2012 and completed a capital increase in 2014 (currently holding 45%). Fei er Kang can provide customers with a full range of 3D printing solutions, is the only domestic titanium alloy powder company that can produce titanium alloy powder in large quantities to meet aviation standards. Titanium alloy powder has passed the civil aviation qualification certification and is used in civil aircraft; in cooperation with Comac on the C919, 3D printing titanium alloy parts have successfully passed the international airworthiness certification and are used on civil aircraft. According to Comac's official website, the total number of orders for the C919 is 570, and the company's 3D-related business is expected to get a piece of the pie.
In the implementation of the second phase of employee stock ownership, it is optimistic to encourage the long-term development of the company. The company completed the first phase of the employee stock ownership plan in 2016, and the cumulative number of shares bought by the company accounted for 0.9741% of the total share capital. At present, the company is implementing the second phase of the employee stock ownership plan, with a maximum amount of 190 million. According to the company's announcement on May 31, 2017, as of the announcement date, the employee stock ownership plan of the second phase of the company plans to buy 15.28 million shares of the company through centralized bidding in the secondary market, accounting for 1.86% of the company's total share capital, with an average purchase price of 8.91 yuan. We expect that the employee stock ownership plan will form a long-term and effective incentive and restraint mechanism, fully mobilize the enthusiasm and creativity of employees, and better promote the long-term and stable development of the company in the future.
Profit forecast and investment advice. It is estimated that the company's EPS from 2017 to 2019 will be 0.17,0.29,0.35 yuan respectively. Considering the scarcity of the company's military business and enjoying a certain valuation premium, the company will be given a buy rating of 60 times PE in 2017, with a target price of 10.20 yuan.
Risk hint. (1) the cost control of aluminum materials is not as expected; (2) the progress of research and development of new military materials is not as expected.