The current situation of the company

We have communicated with the company about the current business situation, and our views are updated as follows:

Comment

The demand for intelligent transformation of equipment business has been gradually opened. The company has been approved by the Development and Review Commission in August to raise funds to invest in the construction project of intelligent printing equipment production line. At present, the company has completed the transformation of automatic logistics on its own equipment, and the first intelligent printing production line in cooperation with Guilian Holdings is expected to be put into production in 2017. The total domestic market space for the transformation of intelligent printing equipment is more than 10 billion. With the industry gradually bottoming out and rebounding in the future, the technical transformation of the printing plant will promote the release of the demand for intelligent equipment, and the company is expected to be the first to benefit.

The development of cloud printing is slightly lower than expected. The company's cloud printing business is mainly based on the B2B2C model, and the company is still committed to expanding B-end business customers. In addition to Tianjin's "central factory", the company is also laying out market development in other areas (such as Beijing, etc.). With the expansion of franchisees, the company is expected to achieve more than 100 million yuan in revenue in 2017.

Tobacco label printing profits are expected to pick up in 2017. In 2016, due to the industry destocking, the company's cigarette label printing business declined, and the performance may be lower than expected due to the decline in gross profit margin for the whole year.

The cigarette label printing industry is expected to recover from a low base in 2017, while gross profit margins are expected to stabilize and pick up.

The coordinated development of industrial investment in many fields. 1) the extension of M & A funds in the printing industry began to land.

In January, the company invested no more than 7% equity in Tiger Color Printing Art, a new third board listed company, which will help the company to expand its "Internet + Printing" customers. 2) participate in the financial leasing company to provide customers with financial support for equipment procurement and promote the sales of the company's products. 3) the establishment of Huahui Securities Co., Ltd. will help to improve the capital operation level of the company and speed up the pace of industry integration.

Valuation proposal

Considering the weak gross profit margin of the printing business, we lowered our 2016 profit forecast by 5.6 per cent to 165 million yuan. Considering government subsidies, the company raised its profit forecast for 2017 by 15.1% to 237 million yuan. At the same time, we introduce the company's 2018 profit forecast of 262 million yuan for the first time.

The company's current share price corresponds to 2017 Pamp E 21.9x, maintains the "recommended" rating, takes into account the gem valuation adjustment, and reduces the target price by 10% to 18.50 yuan, corresponding to 2017 Pamp E 26.5x.

Risk.

Printing equipment continues to be in the doldrums, cloud printing progress is lower than expected.