Event

Recently, we investigated Century Sunshine (0509.HK) and communicated with the management of the company. Main points of investment

We believe that the two seemingly simple industries of magnesium alloy and compound fertilizer and the stock price of less than 1 yuan are the main reasons why the company is ignored by investors. In fact, the company is located in the subdivision of the industry rare earth magnesium alloy and ecological fertilizer prospects are very broad, the company is an absolute leader in the industry, almost no competitors.

Rare earth magnesium alloy is a new market segment of magnesium alloy industry, which is growing fast and can not see the ceiling. The company relies on its strong R & D capability to occupy most of the market share of the industry, has absolute pricing power, and will fully benefit from the general trend of energy saving and lightweight cars.

Compound silicon-magnesium fertilizer and organic fertilizer are environmentally friendly and healthy ecological fertilizers. The company is the dominant company in these two market segments, and the gross profit margin of its products is far higher than that of ordinary fertilizers. Compared with similar compound fertilizer enterprises, the company has smaller volume, outstanding characteristics, high product profits and broad market space.

In the past three years, the company's income grew at a compound rate of 38%, profit at a compound growth rate of 43%, and its performance is expected to grow at a compound rate of 42% in the next three years (mergers and acquisitions are completed). We expect the company's net profit from 2015 to 2017 to be 313 million, 498 million and 645 million, respectively, and the corresponding PE (closing price on July 9) is 6.8x, 4.3x, 3.3x. In Hong Kong, the valuation center for companies with long-term stable returns is 10-15 times, and the valuation center for companies with large and stable growth in the market is 15-20 times. We think there is twice as much room for short-term value to be found, corresponding to the target price of HK $1.16 per share. With the deepening of investors' understanding of the company's long-term growth and the release of mergers and acquisitions and production capacity, the company's share price tripled to HK $1.74 a year later, corresponding to a price-to-earnings ratio of only 10x in 2017, which has a very obvious investment value.