Incidents:
The company released its 2017 semi-annual report. The company achieved operating income of 887 million yuan in the first half of the year, an increase of 15.96% over the previous year; net profit attributable to the parent company was 27.52 million yuan, an increase of 1077.86% over the previous year; net profit after deducting non-vested parent companies was 1.03 million yuan, an increase of 911.41% over the previous year; and basic earnings per share were 0.0335 yuan.
Commentary:
The company's main business is aluminum heat transfer materials, aluminum steel composites, polymetallic composites, etc. Aluminum heat transfer materials are the company's main source of revenue. They accounted for 98.15% of the company's revenue in the first half of the year. Downstream were automobiles, construction machinery, electricity, home appliances, electronics and other industries. Among them, the main customers came from the automotive industry, covering world-class automobile companies such as Valeo, Mahler, Volkswagen, and Tesla.
Government subsidies helped performance in the first half of the year, and profit after deduction still increased dramatically. In the first half of the year, the company included government subsidies of 15.5 million yuan in non-operating income, accounting for about 42% of total profit, an increase of 11.56 million yuan over the same period last year. After deduction, the company's net profit attributable to the parent company was 1.03 million yuan, and the year-on-year growth rate was still 911%.
The volume and price of traditional businesses have risen sharply, and there is a guarantee that growth will continue in the second half of the year. In the first half of the year, the company's revenue increased 15.96% year on year to 887 million; the consolidated gross margin increased 6.50 percentage points year on year to 11.74%. The reason is mainly due to the sharp rise in volume and price of traditional aluminum alloy products and the increase in the finished material ratio. The pricing of the company's aluminum alloy products adopted the “benchmark aluminum price+processing fee” method. The continuous increase in aluminum prices in the first half of the year led to product price increases and profit growth. It is estimated that the average price of the company's aluminum alloy products rose by about 11% in the first half of the year; sales of aluminum alloy composites, aluminum alloy non-composites, aluminum steel composites, and polymetallic composites increased by 17%, -2.42%, -0.36% and 68.89% respectively; sales increased by 29.52%, 9.3%, 6.03% and 95.87%, respectively. There is a clear trend of aluminum prices continuing to rise in July and August, and it is expected that the company's performance growth will be guaranteed in the second half of the year.
In 2015, the company's fundraising project of 200,000 tons of laminated metal composites was completed. As the production rate of new production capacity increased, the finished material ratio continued to rise in the first half of 2017, contributing to the increase in gross margin.
The military business is about to expand. Yinbang Defense, a wholly-owned subsidiary, is the business platform for the company's military products. In the first half of the year, it achieved revenue of 2,957,500 yuan and a net profit loss of 1,386,500 yuan.
The company has been in the military business for three years and has successfully participated in the research and development of several new types of equipment. Some products have already begun to be shipped in small batches. The military project has a long cycle, and no profit has yet been generated. According to the progress of the project, it is expected that some products will soon enter the batch supply stage, and a sharp increase in revenue is imminent.
It is the only metal 3D printing supplier for the C919, a major domestic aircraft. Mass production is worth looking forward to. The company's 3D printing business is based on the participating company Feilkang (the company holds 45% of the shares), which achieved operating income of 9.4086 million yuan and net profit loss of 1,315,800 yuan in the first half of the year. Feierkang is an international leading supplier of 3D printed titanium alloy powder. Its products have been recognized by well-known companies such as Safran, EOS, Renishaw, etc., and are also widely used in the aerospace field. It is also the only supplier of metal 3D printed parts for C919, providing 31 metal 3D parts for each C919. As the official batch supplier of 3D printed parts for COMAC, once the C919 enters mass production, the company's revenue will increase dramatically.
Profit forecasts and ratings. We believe that the company's traditional business still has the impetus to continue to grow, and the military and 3D printing business are facing an inflection point of rapid growth. The company's revenue from 2017 to 2019 is predicted to be 1,914 million yuan, 2,258 million yuan and 2,665 million yuan respectively. Net profit attributable to the parent company was 67.22 million yuan, 96.18 million yuan, and 131 million yuan respectively. EPS was 0.082 yuan, 0.117 yuan, and 0.159 yuan respectively. PE corresponding to the current stock price was 121 times, 85 times and 62 times, respectively. Give ratings to investments that have increased their holdings.
Risk warning: The expansion of military and new materials businesses fell short of expectations, and the price of aluminum dropped sharply.
