Report summary:
Incident: Ningbo Dongli Co., Ltd. released its 2017 mid-year report. The company achieved operating income of 331 million yuan, an increase of 38.31% over the previous year. Net profit attributable to shareholders of listed companies was 1,50766 million yuan, an increase of 373.82% over the previous year. The corresponding EPS was 0.03 yuan, an increase of 200% over the previous year.
Comment:
The optimized product structure led to an increase in gearbox orders, which achieved a sharp increase of 38% in revenue. The company achieved revenue of 331 million yuan in the first half of 2017, achieving a sharp increase of 38% for the first time since the boom in the machinery industry declined in 2011. The gearbox business achieved revenue of 266 million yuan, an increase of 49% over the previous year, accounting for 80%, mainly thanks to the subsidiary Dongli Transmission, which increased the share of ports, building materials, environmental protection, light industry and other industries on the basis of stabilizing the metallurgical market. The product structure was further optimized, the proportion of modular products increased, and sales orders increased 53% over the same period last year; the subsidiary company Onick Pioneer Ward achieved door control system sales of 426 million yuan, an increase of 25% over the previous year, accounting for 13%.
Expenses were effectively controlled, and the company's net profit to the mother increased 374% year on year, and flexibility increased dramatically. The company achieved net profit of 1,50766 million yuan in the first half of 2017, an increase of 373.82% over the previous year. There was little change in the company's gross margin, and the increase in net profit elasticity was mainly due to the effective control of management expenses through employee remuneration and expense taxes, and the reduction in financial expenses due to the reduction in short-term loans in the current period.
The company completed the acquisition of 100% of Nian Fu Supply Chain's shares in July 2017, and its main business was transformed into a supply chain service provider. The company acquired 100% of Nian Fu's supply chain shares with 212 million newly issued shares and 346 million yuan in cash. The transfer of Nian Fu Supply Chain's shares was completed in July 2017, and the company completed fixed increase issuance in August 2017. Nian Fu Supply Chain has been deeply involved in the supply chain business of the electronic information industry for ten years. It has been involved in the medical device supply chain in 2015. The value of goods handled by the company reached 19.299 billion yuan/26.159 billion yuan in 2015/2016 (Yiyatong/Plutong's handling value in 2015 was 64.4 billion yuan/43.9 billion yuan), and the scale of the business is impressive. After the transaction is completed, the annualized supply chain service business revenue will account for more than 95%, making it Ningbo Dongli's main business.
Investment proposal: The company achieved the transformation of its main business through the acquisition of Ninfu Supply Chain. Based on the endogenous growth of Nian Fu Supply Chain's performance, we expect the company's 2017-2019 EPS to be 0.21 yuan, 0.54 yuan and 0.67 yuan respectively, and the corresponding PE will be 47X/18X/15X respectively.
Risk warning: The business of old customers is sluggish, and the expansion of new customers falls short of expectations.