Investment logic

Precision copper tube business: The company has an annual production capacity of about 60,000 tons of precision copper tubes and 5,000 tons/ton of deep-processed copper tube products, ranking among the highest in the country. Hailiang Co., Ltd., Jinlong, Ningbo Jintian, etc. are at the same level. The production capacity carriers for copper pipes are mainly the parent company, the holding subsidiary Jingyi Wanxi (75%), and the wholly-owned subsidiary Wuhu Copper, which has a production capacity of 30,000 tons. The company's copper pipes and deep-processing products are mainly used in air conditioning manufacturing, refrigerators, water heaters and other industries.

Backed by the air conditioning capital, the company is located in the Shunde district of Guangzhou, in the Pearl River Delta, and backed by two major air conditioning giants, Midea and Gree. The two companies account for more than 70% of the company's copper pipe business; secondly, the powerful air conditioning companies Colon and Zhigao are also located in Guangdong. Furthermore, the company deployed Wuhu Fine Arts in Wuhu, with the aim of supporting enterprises in the Yangtze River Delta region.

Competition in the copper pipe industry is fierce, and it is difficult to improve in the future: due to the rapid development of China's air conditioning industry, the production capacity of the copper pipe industry continues to expand. Since 2003, China's copper pipes have been switched from imports to exports, with an annual overcapacity of more than 100,000 tons since 2006. After a reshuffle in recent years, the domestic copper pipe industry pattern is now basically stable, forming a pattern dominated by enterprises such as Henan Jinlong, Zhejiang Hailiang, Ningbo Jintian, and Jingyi Co., Ltd. However, what these enterprises have in common is that they have relatively stable and high-quality large customers and large production capacity, so even though the company's gross margin is less than 5%, it can still operate at a lower cost. Since the peak growth rate of the air conditioning industry is over, the copper tube industry still needs to continue to be reshuffled in the future.

Demand in the non-ferrous processing equipment industry has declined: the main product is the continuous casting and rolling production line for copper pipes produced by Guanbang Technology. The company is an absolute domestic leader, with a market share of 75%, and the absolute market share has brought about the previous high gross margin level (35%). Competitors such as Hailiang and Jinlong are all equipment produced by the companies that purchased them. This business is expected to decline slightly in the next two years. The main reason is that the copper tube industry will need to experience loss of production capacity, the willingness to invest in equipment has declined, and products are under double pressure from price and sales volume.

There is still potential to reduce costs and improve efficiency: compared to Hailiang, the company still has room for improvement in turnover and expenses (basically the same gross margin level, one loss, one ROE of 7%). With the increase in the capacity utilization rate and production and sales rate of the Wuhu subsidiary (the current production capacity is 30,000 tons, the output is more than 10,000 tons). The current depreciation of the Wuhu company is about 15 million yuan per year, and the Wuhu company will be the company's business priority next year. Furthermore, the company still has room for further reduction in management expenses.

The transformation became management's consensus: the company suspended trading for asset mergers and acquisitions in July, but lost touch in the end. However, the company's determination to transform and find new growth points can already be seen, and it was suspended again recently. Currently, the company has established a management guiding philosophy of “consolidating and optimizing the existing main business and promoting industrial restructuring”, actively seeking and carrying out expansion work into non-ferrous industries, developing technologies and products in the fields of hydraulics and electricity, and entering the market.

The seeds of Huayi Power are sprouting: Huayi Power, which has 25% of the company's shares, is a leader in the field of ultra-high pressure hydraulics, and is a typical product of a combination of professional technical workers and capital. The high-pressure valves and high-pressure pumps it developed filled the domestic gap and broke the situation where the country had always relied on imports. It is widely used in shipbuilding and marine engineering, nuclear power, completion, high-speed rail and other fields. It is expected that Huaxi will be stable in 2013, and that a growth period will begin in 2014.

Investment advice

EPS estimates for 13-15 were 0.026 yuan, 0.078 yuan, 0.153 yuan. For a typical traditional enterprise that is already seeking transformation, reference performance and valuation are of little significance. It is recommended to look at it from a long-term perspective. The absolute low stock price since listing and less than twice the PB have a certain margin of safety, but it is difficult to grasp the inflection point. Suggestions can be placed on a tracking list; ratings will not be given at this time.

risks

Reorganization and transformation failed