Incident: The company released its annual report: revenue of 473 million yuan in 2015, an increase of 16.64% over the previous year; operating profit of 29.2638 million yuan, an increase of 25.35% over the previous year; Guimu's net profit of 1,50335 million yuan, a decrease of 17.30% over the previous year; after deduction, Fumo's net profit was 19.036,800 yuan, an increase of 28.61% over the previous year, and basic earnings per share were 0.03 yuan.
Investment highlights:
Proactive development of new products and new customers has led to a rapid increase in revenue
1) The company actively developed mid-range and high-end sedan crankshaft products to adjust the product structure (average price increased 7.35%) and actively expanded new customers. During the reporting period, it supplied GAC, BAIC Yinxiang and Dongan Mitsubishi in batches, and developed new customers such as Changan Suzuki, Changhe Suzuki, Yunnei Power, and BAIC Futian. These two factors contributed to a relatively rapid increase in the company's revenue against the backdrop of poor automobile sales. 2) The additional relocation costs of the Jinhong crankshaft production line and extensive restoration of construction projects led to a rapid increase in costs and expenses. Echai Hongxiang's debt was exempted from interest of 9.33 million yuan in 2014, leading to a high non-operating income base during the same period. These together led to a decline in net profit. However, the relatively rapid increase in net profit after deduction is in line with our expectations. 3) Since Jinhong's crankshaft has been relocated and the “crankshaft production line” has been successfully put into operation, we expect that it is a probable event that the “crankshaft production line” passed the inspection this year to obtain a real estate certificate and be injected into the listed company. As the company actively lays out mid-range and high-end crankshafts and expands new customers, it is expected that its main business performance will continue to improve. At the same time, this year the company proposed “actively seeking new economic growth points. “Strive to explore and establish mutually beneficial strategic alliances, investments, joint ventures, and mergers and acquisitions opportunities to refine and strengthen the main business” is expected to further improve the company's overall profit situation.
The highlights of capital operation remain the same
1) The majority shareholder Haowu Electromechanical Asset has excellent qualifications. In addition to benefiting from the development and growth of Bussan Group, the controlling shareholder, the company may become a capital platform for securitizing the automotive electromechanical sector of the Bussan Group; 2) According to public information, the company will expand the company's main business through mergers and acquisitions around the automotive afterservice market, cultivate new industries, and increase new profit growth points. The company has initiated the establishment of a technology-based SME venture capital fund - Tianjin Wealth Jiazhi Investment Partnership (Limited Partnership) with three companies, Binkai Investment, Zhuolang Technology, and Huixin Chuangfu. From operating data, it is anticipated that investment projects may have already begun. This will help expand the company's main business and provide new performance growth points. 3) Currently, the second shareholder, Xinjiang Silicon Valley Paradise, has become a related party and has signed a “Strategic Consulting and M&A Integration Service Agreement”, which will help the company cooperate more closely with Xinjiang Silicon Valley Paradise in the future. Based on the foregoing, we believe that with the support of joint venture capital funds and Silicon Valley Paradise, it is worth looking forward to future mergers, acquisitions, and the expansion of the main business around the post-service market to achieve leapfrog development.
Raise profit forecasts and maintain the “increase in holdings” rating
We believe that the marketization of the remuneration incentive mechanism for company executives (linked to ROE and market value) plays an important role in increasing the enthusiasm of executives to work and improving the company's performance. As can be seen from the relatively rapid increase in the company's revenue last year, the company's operations are gradually on the right track. We have raised our profit forecast: we expect the company to achieve operating income of 570/718/934 million yuan in 2016-18, an increase of 20.61/26/ 30%; achieve net profit of 0.29/0.36/51 million yuan, an increase of 94.12/22.97/ 41.95%. The corresponding EPS is 0.06/0.08/0.11 yuan/share, respectively. We recommend continuing to pay attention.
Risk warning: mass production of new products and development of new markets fell short of expectations; cost growth during the period exceeded expectations; progress in national reform and capital operation fell short of expectations.
