Summary of the report:
The company announced that it won the bid for the PPP project of the northern section of the Kaili Ring Expressway in Guizhou Province. the total investment of the project is estimated to be 11 billion yuan, the construction period is 3 years, the project toll period is tentatively 30 years, and the company jointly sets up the project company according to 10.5%.
Taking advantage of PPP and with the help of China Electric Power Construction, the highway construction business has successfully gone out. The winning bid means that the company's highway construction business is no longer limited to Tibet and has successfully achieved the strategic goal of "going out". The company has in-depth cooperation with China Power Construction, and it is expected that under the circumstances of controllable risk, the company will continue to promote the "going out" strategy with the help of PPP, so as to open up a bigger market for highway construction business.
The prosperity of cement in Tibet is high, and the high price falls short of demand. It is estimated that the cement production in Tibet will reach 6.25 million tons in 2016, and the demand will exceed 8 million tons. The large gap will keep the cement price high for the whole year, reaching a high point of nearly 1000 yuan. Investment in fixed assets in Tibet has remained at 20%-30% for many years in a row, and is expected to remain high this year, with relatively strong demand. On the supply side, two new production lines have been added in the region this year, and the 4000t/d clinker production line for building materials in Tian Lu, Tibet, under construction is expected to be put into production by the end of September, while in October, construction in Tibet has been basically impossible, and the actual production capacity is limited. Huaxin cement's planned 4000t/d clinker production line will start this year and will be put into production in 2018. In the first five months, the average price of taxable cement in Tibet was about 755 yuan, an increase of 170 yuan over the same period last year. With the arrival of the peak construction season, the price of cement in Tibet is expected to remain high throughout the year and enhance the profitability of the company's cement business.
Investment suggestion: the company actively embraces PPP and cooperates deeply with China Electric Power Construction to speed up the pace of going out and usher in a larger space for the highway engineering market. The prosperity of the cement market in Tibet is high, and the gap between supply and demand is difficult to fill in the short term. It is expected that the cement price will still be higher than the national level, the company's new production capacity will be released next year, and the profitability of the cement business will remain high. We expect the company's operating income from 2017 to 2019 to be 33.60,42.54 and 4.975 billion yuan respectively, the net profit attributed to the parent company will reach 4.77,6.54 and 719 million yuan, and the EPS will be 0.72,0.98,1.08 yuan respectively, corresponding to the PE of 14.3X, 10.5x and 9.5x for the first time.
Risk hint: investment in fixed assets in Tibet is not as expected; the progress of the PPP project is not as expected.