Report summary:
An overview of financial data for the first quarter of 2016 released by the company on April 21 shows that the company achieved operating income of 343 million yuan during the reporting period, an increase of 6.51% over the previous year; net profit attributable to shareholders of listed companies was 101 million yuan, an increase of 9.71% over the previous year. The main reasons for this growth rate of net profit being higher than revenue are: first, holding subsidiaries' loans decreased, and interest paid on loans decreased, which in turn led to a sharp drop in financial expenses; second, government subsidies increased by 91.84% over the previous year. Note also that disposal losses due to the company's disposal of scrapped fixed assets increased dramatically during the reporting period, resulting in a 1217.05% year-on-year increase in disposal losses of non-current assets. Net profit attributable to shareholders of listed companies was $30 million after deducting various non-current profit and loss including government subsidies and disposal losses of non-current assets, an increase of 6.43% over the previous year. Furthermore, the net cash flow from the company's operating activities in the first quarter of 2016 was 38 million yuan, an increase over the previous year. This was due to a decrease in cash spent on purchasing products, receiving labor, etc. during the reporting period compared to the same period of the previous year, and the cash flow was sufficient.
A good year has come, and expectations for the reform of state-owned enterprises in the vanadium mine are drawing attention. First, it is expected that 2016 will be a prosperous year, and the company's power generation capacity will increase significantly, which will drive the growth of the company's revenue and net profit. Second, the “Sichuan State-owned Enterprise Reform Method” and the “Sichuan State-owned Enterprise Reform Plan List Schedule” were announced one after another. Star Electric may carry out major restructuring through market-based operation, etc., and reform expectations are promising. Third, Aoshenda Mining, which is controlled by the company, is rich in vanadium ore resources. Its value is huge, and its contribution to profits should not be underestimated.
The electricity price policy is adjusted, and profits may decline. Recently, the company received a notice from the government that the electricity price adjustment policy will be implemented from January 1, 2016, and that the electricity prices on the sales side of Sichuan Power Grid will be suspended, the electricity prices of Fengkou Fenggu electricity prices on the Internet side of thermal power and the Fengkou Fenggu electricity prices of hydropower. Based on estimates based on the electricity purchase and sales structure in 2015 and the planned electricity purchase and sale volume in 2016, it is estimated that this year's operating profit will be reduced by more than 15 million yuan.
Valuation and financial forecast: The company's operating income for the next three years is estimated to be 1,382 billion yuan, 1,511 billion yuan respectively. Net profit attributable to the parent company will reach 1.15, 1222, and 131 million yuan, and EPS will be 0.35, 0.38, and 0.40 yuan respectively, maintaining the increase in holdings rating.
Risk warning: lower electricity prices; increased competition in the industry, etc.