Main points of investment:
The company is the leader of East China aluminum processing private enterprises, and the core profit comes from construction aluminum profiles. Headquartered in Huzhou, Zhejiang Province, the company has focused on the production and sales of aluminum processing products since it was listed in 2006. The core products are two categories: 1) building aluminum profiles for door and window frames, interior decoration and curtain wall system; 2) aluminum plate, is a kind of consumables in the printing industry. The company was shortlisted as "Top 20 Chinese Construction Aluminum profile Enterprises" and its "pillars".
Brands and other products occupy a high market share in East China. More than 80% of the company's revenue is metal trading, with a thin gross profit, while its construction aluminum profile business accounts for about 70% of its gross profit over the years, which is the company's main source of profit.
The downward trend in raw material prices superimposed weak demand and put pressure on 2015 results. Sales of profiles rose slightly in 2015, while sales of aluminum sheets (downstream printing) fell 6 per cent, hit by "new media" such as e-books.
The downward price of raw material aluminum led to a reduction in the unit price of the company, with profile revenue of about 1.406 billion, down about 3.4% from the same period last year, and sheet metal revenue of about 550 million, down 15.8% from the same period last year. The company adopts "aluminum ingot price + processing fee"
In the pricing model, with the intensification of competition, the reduction of processing fees makes the gross profit margin drop by 0.26pct and 0.13pct respectively; under the background of the continuous decline of raw material aluminum prices, because the company inventory has a certain cycle from purchasing production to sales, the sales price of aluminum ingots is upside down with the purchasing price, eroding the company's profits. Affected by the above factors, the company achieved a net profit of about 63 million yuan in 2015, down about 41% from the same period last year.
The equity of the actual controller is transferred in a large proportion, and asset restructuring is expected to continue to advance. The company announced in September 2015 that it planned to acquire 100% stake in Wan Bond Pharmaceuticals, but the company decided to terminate the restructuring because it may not be able to complete the restructuring within the specified time limit. In March 2016, Lu Zhibao, the actual controller of the company, signed an equity agreement with Wan Bond Group, the controlling shareholder of Wan Bond Pharmaceuticals. After the completion of the transaction, Lu Zhibao and Wan Bond Group respectively held 9.44% of the shares in the company (transaction consideration 730 million yuan, 32.49 yuan per share). The company added Zhao Shouming and Zhuang Hui (shareholders of Wan Bond Group) as actual controllers. The company's existing main business performance continues to decline, the former actual controller Lu Zhibao has resigned as chairman of the company and transferred a large proportion of his shares in the company, we expect that the subsequent asset restructuring is expected to continue.
Wan Bond Pharmaceutical is the core asset of Wan Bond Group and has broad prospects for development. Wan Bond Group's annual income in 2015 is about 560 million yuan, net profit is about 110 million, gross profit margin and net profit margin are about 75% and 20% respectively.
Wan Bond Group's assets include medicine, medical devices, investment, machinery and so on, of which the pharmaceutical sector is its core asset, which is expected to contribute the main income and profits of the group. Wan Bond Pharmaceutical is mainly engaged in the research, development, production and sales of modern traditional Chinese medicine, chemical raw materials and preparations, with distinctive features and obvious advantages in the research and application of natural plant medicines in the field of major cardio-cerebrovascular and nervous system diseases. Its main product, ginkgo biloba dropping pills, is highly appraised by people in the industry. Zhao Shouming, the actual controller of Wan Bond Pharmaceutical (now one of the actual controllers of the company) has an in-depth understanding of the pharmaceutical industry and rich experience in enterprise management. he is the vice chairman of Taizhou Pharmaceutical Association and the director of Zhejiang Pharmaceutical Association.
Give a "buy" rating for the first time. We estimate that the EPS of the company from 2016 to 2018 will be 0.32,0.34,0.35 yuan. In view of the expectation of subsequent restructuring of the company, the equity transfer price premium of the actual controller is relatively large, we give the company PB (the latest net assets per share) 4.0 times, the target price is 23.00 yuan.
Risk hint. Subsequent asset restructuring is lower than expected; aluminum prices continue to have a downward trend.
