1--3Q16 performance meets expectations
Jiulian Development announced 1--3Q16 results: operating income was 1.9 billion yuan, down 26% from the same period last year; net profit belonging to the parent company was 19.83 million yuan, down 78% from the same period last year, corresponding to earnings per share of 0.06 yuan. As expected. Among them, 3Q realized 634 million yuan in revenue in a single quarter, down 8% from the same period last year, and realized a net profit of 15.44 million yuan.
The decline in the company's revenue is mainly due to the intensification of market competition after the liberalization of the price of civil explosive products, the decline in the sales price of the company's products, the understart of infrastructure projects and the downturn of the mining industry, and the decline of new blasting projects.
Trend of development
The examination and approval of PPP infrastructure projects is accelerated, and the blasting engineering business is expected to improve. The company's blasting construction and technical services are in the leading level in China, with an annual blasting construction capacity of 3.5 billion yuan. The number and amount of PPP projects signed in Guizhou Province ranks first in the country. The company has obvious competitive advantage as a state-owned enterprise in Guizhou Province. The central enterprise background of Poly Group, the controlling shareholder, also helps to enhance the company's competitive advantage in the whole country. With the continuous increase of investment in PPP projects in China, the company's blasting engineering business orders are expected to increase rapidly.
Poly Group's private explosive assets are expected to be fully injected into the company. Poly Group promises to inject Panjiang Chemical into the company within 2 years after the completion of the integration. At the same time, 100% equity of Poly Chemical Holdings Co., Ltd., and 70% equity of Shandong Yinguang Civil explosive equipment Co., Ltd. are expected to be injected into listed companies before 2020. Poly Minbao Technology Group Co., Ltd. will also inject 50.6% equity into the company within 5 years after the resumption of production of Poly Minbao Jinan Technology Co., Ltd. At that time, the company's industrial explosive production capacity will reach 443000 tons. As the integration platform of civil explosive assets of Jiulian Group, the company will further enhance the concentration of domestic civil explosive industry in the future.
Profit forecast
Due to the increase in orders for blasting engineering business, we have raised our earnings per share forecasts for 2016 and 2017 by 41% and 21% respectively from RMB0.09 and RMB0.18 to RMB0.12 and 0.22 respectively.
Valuation and suggestion
At present, the company's share price corresponds to a net market ratio of 3pm 2.9x in 2016. We maintain a neutral rating, but raise our target price by 21.21% to 20.00 yuan, which is 8.99% upside from the current share price. The target price corresponds to a price-to-book ratio of 3.2x in 2017.
Risk.
Poly Group asset injection is not as expected, product prices continue to fall.
