Main points of investment
Railway electrification leader, large-scale acquisition of Germany Baofu RPS, improve the urban rail primary and secondary equipment layout. Kaifa Electric has enjoyed a high market position in the railway electrification market. In 2016, Q3 completed the acquisition of German Baofu RPS business, further extending its product line and strength in the field of subway and urban rail. Through mergers and acquisitions, the company has rail AC / DC power supply system, catenary, solid insulation switchgear and other related technology, which can provide complete primary and secondary power supply equipment and solutions for subway and rail transit.
The "13th five-year Plan" subway / urban rail investment may exceed 2.4 trillion, and the company will embrace the incremental market of hundreds of billions of power supply systems. The high growth of subway and urban rail investment will continue. China's urban rail density has huge room for improvement, and the approved investment has exceeded 20%. In the future, with the lowering of the threshold for urban construction and the decentralization of approval authority, it is expected to further accelerate and maintain a high growth rate of more than 20%. Through this acquisition, the company has improved the product layout of the subway and urban rail power supply system, and is expected to continue to benefit from the high growth of urban rail investment in the future.
The investment in railway and its electrification continues to increase steadily, and the company's stock business advantage is stable. Railway investment exceeded 800 billion in 2015, while the electrification rate continues to rise, and is expected to steadily maintain a growth rate of about 10 per cent in the future.
The company has maintained the top three positions in the railway power supply system, and its products are constantly enriching. As the industry investment remains high, it contributes to stable income for the company.
Sufficient on-hand orders to ensure the smooth progress of integration, business collaborative optimization is expected to increase performance flexibility. As of 2016Q3, the company has more than 2 billion orders on hand, including more than 1 billion domestic orders. In the future, with the successive delivery of orders, it will ensure the performance of the company and provide strong support for post-acquisition integration. After the acquisition, on the one hand, the company will optimize management and enhance the profitability of international business; on the other hand, it will expand the Chinese market with the help of the advanced technology of German wealth protection, bringing new growth points for business development.
Risk hint. 1, the investment of railway and urban rail transit is not up to expectations; 2, the industry competition leads to the decline of product gross profit margin; 3, the process of transaction integration is not up to expectations.
Profit forecast, valuation and investment rating. The future development of the company is considered from two aspects: 1) the stock business continues to take the lead in the railway power supply system, and the stable increase in railway investment will ensure stable performance in the future. 2) although the acquired incremental business is temporarily at a loss due to management and regional factors, the products can make up for some of the gaps in the urban rail market, and with the development of the domestic market and synergy, it is expected to increase the company's performance flexibility after 2-3 years. Taking into account the factors of acquisition and consolidation, the company's revenue in 2016-18 is estimated to be 726max 1.402max RMB 1.569 million, the net profit is 107101max RMB 155m, and the EPS is 0.39max 0.37pm 0.57 yuan respectively. Due to the different development cycles of the two sectors, we value the two parts of the business separately: the pre-acquisition stock business is valued at a price-to-earnings ratio of 3 billion yuan, and the acquired RPS business is valued at a price-to-sales ratio of 2.5 billion yuan, with an overall valuation of 5.5 billion yuan. The corresponding share price is 20.20 yuan. Coverage for the first time, giving a "overweight" rating.