Introduction to this report:
The short-term stabilization of coal prices was favorable to the recovery of performance, participation in aero-engine parts manufacturing promoted transformation, and the target price was raised by 10 yuan.
Investment highlights:
The short-term stabilization of coal prices boosts profits, and the transformation to the new generation builds a long-term path. Considering the arrival of the peak coal season in winter and the need to replenish stocks in ports and power plants, coal prices are expected to be supported in the short term, which will help stabilize the company's performance. We raised the company's 2015/16 EPS to 0.12 and 0.11 yuan (originally 0.08 and 0.10 yuan). Also, consider expanding the company's layout in emerging fields such as high-end consumption, aviation manufacturing, healthcare, etc., relying on outreach methods to accelerate development. Referring to the average valuation level of the transformed industry, the company was given 83 times PE over 15 years, and the target price was raised to 10 yuan (originally 7.5 yuan) to maintain the increase in holdings rating.
Inventory replenishment began during the peak season to temporarily stabilize coal prices, and the Simpson merger and acquisition strengthened the yacht layout. Data on daily coal consumption for thermal power have improved markedly, while inventories in core power plants and ports have dropped to a low level. Demand for downstream supply stocks may stabilize coal prices in stages. In addition, China Securities Network reports that Shenhua recently cancelled preferential coal sales in an effort to ensure short-term stability in coal prices. We believe that stabilizing coal prices in Q4 will help the company recover its profits. Furthermore, the company's acquisition of 60% of Simpson (10% in the first phase) is another promotion for senior yacht customizer San Laurenzo, an earlier joint venture into the yacht industry. With the abundant sales resources of Simpson Yachts Co., Ltd. (revenue of HK$322 million in 2014), San Lorenzo is the sole agent for the Asia Pacific region to drive the growth of the company's yacht business.
Focus on high-end aviation manufacturing and establish a medical merger and acquisition fund. The company cooperates with AVIC to engage in aviation manufacturing. Of these, 10% of AVIC's shares participate in China's Hanzhong Aviation Components Company to develop aircraft manufacturing and parts production; it invests 45% to establish AVIC Xindazhou to provide Leap engine parts. The company has signed 25 parts supply with Snecma. The first model was delivered on December 11, 12 official documents are yet to be delivered, and 3-5 prototypes are awaiting inspection. According to the plan, the company is expected to produce this component in 2016, which is expected to increase its performance at that time. Furthermore, the medical merger and acquisition fund set up by the company is also in operation, actively seeking high-quality targets for the company's transformation into healthcare.
Risk warning: coal prices continue to fall, progress in medical transformation is lower than expected