Main points of investment

Event: a series of announcements have been announced recently, in which the company's major shareholder, Liuzhou State-owned assets Supervision and Administration Commission, promised that if the company achieves operating profits (excluding non-operating profits and losses) for the next three years (2014-2016), accomplishes the term assessment target passed by the shareholders' meeting, and the economic value added (that is, EVA) at the end of the term of office in the next three years is positive and other related conditions. In the year after the end of the term, an incentive program with the management team and core business backbones as the main target and linked to EVA of economic growth will be launched. The company's short-term margin trading registration has been approved in the near future and will be approved by the shareholders' general meeting. On June 26, we communicated with the company. The main points are as follows:

The core condition of equity incentive is to achieve operating profits for three consecutive years (excluding non-operating profits and losses). Considering the current operating situation of the company, the requirements of SASAC are still relatively high, this commitment is the commitment of major shareholders in the non-tradable share structure reform. Liuzhou State-owned assets Supervision and Administration Commission attaches great importance to the fourth article on the supervision of listed companies of the Securities Regulatory Regulatory Commission. At the same time, two companies such as Liuhua shares in the state-owned assets system have the same problems. They are reported to Guangxi State-owned assets Supervision and Administration Commission, and feedback information can be done, but state-owned assets are required to maintain and increase their value, and there should be EVA evaluation. At the same time, the CSRC requires the deduction of non-profit to be positive.

SASAC requires that non-profit be deducted for three consecutive years, and equity incentives can only begin in 2017 when the current conditions are met.

Since the new Chairman Zhong took office in January 2013, new products have been put on the market one after another, and there has been a great improvement in paste, packaging, functional requirements and other aspects. The new leading group focused on the main business of toothpaste and made great efforts in the development of new products, successively launched five new products of traditional Chinese medicine analgesia series, and consciously upgraded the products in view of the aging of the original varieties. The original retail price of the old product is 3-4 yuan, the retail price of the upgraded product is 10-14 yuan, and the retail price of the new series of traditional Chinese medicine toothpaste is between 20-60 yuan. at the same time, the company focuses on traditional Chinese medicine, striving to further focus on product positioning and function in the future. make a characteristic product with a nitidine.

The gross profit margin of the original old toothpaste products is 14%, which basically makes no money. Now the gross profit margin of the newly upgraded products is 25%, and that of traditional Chinese medicine toothpaste is about 36%. We are now giving sufficient profit space to the circulation channels, and the upfront investment in expenses is relatively large. At present, the ex-factory price and terminal sales price of new products are about 3 times. Sales of new products in the first quarter of this year increased by about 40% over the whole of last year.

Sales reform requires highlighting the core value of Zanthoxylum nitidum, which started with Chinese herbal medicine and has become an example for the company since the sudden rise of Yunnan Baiyao toothpaste. The company hopes to achieve 300 million toothpaste in three years, excluding hotel supplies and fragrant grass. Toothpaste sales focus on Guangdong and Guangzhou, Jiangsu, Chongqing and Chengdu, of which Guangxi and Guangdong each account for about 20%. We are currently doing the best in Jiangsu, which is a little more than Guangxi. The best foundation of the Zanthoxylum nitidum brand is in the relevant provinces of the Beijing-Guangzhou line, which currently has about 260 sales staff. We account for about 70% of the market share of hotel supplies, and the production base is in Yangzhou, Jiangsu Province.

Actively learn from the leading domestic companies in marketing, and strive to introduce talents in this field. Advertising planning with a number of companies (focus Media, Provincial Guang shares) cooperation. Marketing advertising will increase the investment budget this year, focusing on new products in the second quarter, and if the market responds well, the company will adjust accordingly according to market conditions. Now the difficulty is that the cost of hypermarkets and supermarkets is too high, and the company is looking for ways to break through terminal sales, such as entering hypermarkets through dealers, or trying other ways to cooperate with dealers and supermarkets. In addition, after the fixed increase and short financing funds are in place, it will help to alleviate a large number of capital needs of the company in channel and brand construction. We are also strengthening the distribution channel, highlighting the direction of traditional Chinese medicine, and also getting in touch with the drugstore channel. The response in recent months is good, but we also need more time to test.

Yancheng Jiakang (the company holds 35% of the shares, the largest shareholder) the leading product is the fourth generation of sweetener sucralose, the first generation is saccharin, the previous products have some shortcomings, aspartame is not stable enough, the sugar content will decrease after 2 months. Our products do not contain calories, taste very good, mainly in Europe and the United States and Japan widely used, China is still gradually promoting. Our major customers include Haitian, Mengniu, Yili, Wa and so on. The production base is in Sheyang County, Yancheng, Jiangsu Province. we sell 400 million yuan a year, and we rank second in the world. Last year, we produced about 1300 tons, the highest yield in China, the highest domestic production and marketing rate, and nearly 100% capacity utilization. May expand in the future, the current product price 28-300,000 yuan / ton.

Papermaking business: mainly pulping + papermaking. Pulping company is now doing energy saving and emission reduction transformation of the old system, in line with the requirements of environmental protection, pulping will not be expanded. Papermaking is hoping to expand, the company also announced 80,000 tons of household paper project, papermaking itself is not polluting. The consumption growth of household paper industry is not bad. The decline in the main revenue in the first quarter is mainly due to the unsatisfactory pulp and paper price, negative gross profit margin and the company's shutdown to reduce losses.

We expect the company to complete the fixed increase for major shareholders by the end of the year, and the company is expected to complete it as soon as possible, which is expected to be completed in September-November. The short-term financing quota of 700 million has been approved, and the company plans to divide it into two batches, 350 million hair in the first phase, and then connect it in the second year. After the short-term financing funds are in place, the investment can be increased in advance to support the construction of toothpaste channels and marketing networks.

Real estate is mainly the development of its own land resources, the company does not participate in land bidding and market-oriented operation, the conditions of real estate divestiture are not mature.

Considering that the basic change trend of Zanthoxylum nitidum is becoming more and more obvious in the future, it is suggested that investors should pay active attention to it. It is estimated that the income of Zanthoxylum nitidum from 2014 to 2015 is 1.426 billion yuan and 1.716 billion yuan respectively, an increase of 12.45% and 20.32% over the same period last year, and the net profit is 34 million yuan and 67 million yuan, an increase of 244.09% and 100.54% respectively over the same period last year, corresponding to 0.07 yuan and 0.15 yuan for EPS. Maintain the "overweight" rating.

Risk tips: the promotion of new toothpaste is lower than expected, and the cost increases sharply in the process of promoting new products, which affects the company's profits; the paper industry and other assets may be a drag on the company's performance; if the sucralose industry expands production on a large scale, it may lead to a sharp drop in prices and affect the company's profits.