Key points of investment
Iron Bull Group's core listed company platform. Tongfeng Electronics is a manufacturer of film capacitors and film materials located in Tongling, Anhui. It is a supplier of basic components for the electronics industry. Its products are widely used in rail transit, power grids, new energy, home appliances and other fields. Due to the rapid expansion of the midstream industry in recent years and falling product prices, revenue in 2014 was 670 million yuan, and Guimu's net loss was about 83 million yuan. The company was suspended at the end of September 2015, with a market capitalization of 3.2 billion yuan. Tienniu Group, the majority shareholder, announced in January that it will inject Zhejiang Yongkang Hardware Industrial Park into this listing platform to begin industrial integration.
Get rid of your burdens, exchange blood teams, and greatly increase your controlling power. Tienniu Group is headquartered in Yongkang, Zhejiang. Over the past 20 years, it has formed an industrial group dominated by auto parts. In 2011, it obtained all of Tongfeng Group's shares and became the actual controller of the listed company. There was a major change in the company's leadership in September last year. A new general manager, director and other teams were appointed to prepare transformation plans. At the end of 2015, the company's old factory area was expropriated and received 220 million yuan in land compensation from the government. The impact on that year's profit was about 100 million yuan, successfully escaping the burden of old production capacity. Once this restructuring and supporting fund-raising are completed, Iron Bull Group's controlling interest in the company will increase from 16.8% to 39%, laying the necessary foundation for future extension integration.
Use high-quality real estate resources to build a hardware e-commerce platform. The first part of this backdoor restructuring was to inject Tieniu Group into about 700 acres of land and related real estate projects in Yongkang City (more than 50% of these real estate projects are expected to be sold within 2017), and the price was locked at 5.2 yuan/share. The performance promise was that if the transaction were completed in 2016, the net profit for the 2016-18 three years was 2.5 billion yuan, which is equivalent to the acquisition of PE 5.4 times that of 2017, and the valuation is reasonable; the second part is to raise supporting capital to support future local hardware e-commerce industrial park projects based on the local hardware and e-commerce industrial park project. 100 million yuan. The hardware industry is Yongkang's pillar industry. There are more than 10,000 hardware machinery enterprises in Yongkang city, more than 300,000 people working in the hardware industry, more than 10,000 types of hardware, and the hardware industry accounts for about 90% of the city's total industrial output value. In 2014, offline hardware stores traded 38.6 billion yuan and online transactions amounted to 22 billion yuan, forming a large-scale specialized industrial zone. This merger and acquisition of the e-commerce platform is expected to use the advantages of the local industry to create new growth points through the Internet finance model in the future.
CDB loans are optimistic about the future development of new materials and high-end components. During the suspension period, the company announced that Hehui Jinyuan, a wholly-owned subsidiary, was selected for the national special construction fund project in 2015, and the Anhui branch of CDB arranged medium- to long-term preferential interest rate loans of 231 million yuan to support it, with an average annualized interest rate of 1.27%. Currently, the above funds have been received, and Hefei Urban Construction Investment Group will ensure investment in the construction of new materials, new energy and high-end component R&D industrial base projects. We believe that the company's traditional capacitor and film materials business has built up a good customer base, and once this financing is completed, it is expected that expansion will be accelerated through outreach. Furthermore, Zotye Auto, a subsidiary of the Tienniu Group, has developed rapidly in recent years, and we expect that there is a high probability that the company's capacitor products will enter the fields of new energy vehicles and green energy in the future.
Risk factors: Asset restructuring falls short of expectations, e-commerce industrial park performance contribution falls short of expectations, etc.
Profit forecasts, valuations, and investment ratings. We expect the company to reverse its losses in 2015, and real estate resources will begin to contribute to performance in 2016. Looking at the project cycle, most of the revenue will be confirmed one by one from 2017. We expect the 2015/16/17 EPS to be 0.01/0.17/0.43 yuan respectively. Due to the high growth of the company's 2017 performance expectations, referring to similar companies such as Small Commodity City, Zhongye Da, Haining Picheng, and taking into account the development potential of e-commerce industrial parks and M&A expectations, the 2016/17 average PE 26x, corresponding target price 7.8 Yuan gave a “buy” rating for the first time.
