Core viewpoints
Event: the company released its mid-2017 report. During the reporting period, the company realized operating income of 2.071 billion yuan, down 15.71% from the same period last year. Net profit belonging to shareholders of listed companies was 57 million yuan, up 6.11% from the same period last year. Net profit belonging to shareholders of listed companies after deducting non-recurring gains and losses was 42 million yuan, down 17.69 yuan from the same period last year; and basic earnings per share was 0.08 yuan.
Adjust the production equipment, resulting in a decline in revenue: in the first half of 2017, the main raw materials used in tire production fluctuated sharply, and the company took the initiative to eliminate some products with poor profitability in order to ensure the gross profit margin. At the same time, in view of the environmental protection relocation of the company and the imminent completion of the industrial 4.0 intelligent chemical plant, as well as the market and capacity integration after the completion of major M & A projects implemented through the M & A fund in the future, the company terminated all leased production projects and some cooperative production projects, resulting in a year-on-year drop of 155,71% in revenue.
Due to the elimination of low gross margin products, the company's overall gross profit margin increased by 1.9% over the same period last year; in addition, the company's non-operating income increased by 16.49 million over the same period last year, driving the company's homed net profit increased by 6.11% compared with the same period last year.
Channel destocking ends + rubber prices fall, and the performance will improve in the second half of the year: tire prices rise one after another with rising raw material prices in the first quarter, and there is a serious hoarding phenomenon among tire dealers, retailers and other channels. With the decline in raw material prices in the second quarter, channel merchants are generally on the sidelines to digest inventory, and the current channel merchant inventory gradually returns to the normal level. The third quarter is the traditional peak season for tire demand, and tire sales are expected to increase. Rubber prices fell, tire enterprises greatly ease the cost pressure. Rubber costs account for about 45% of the manufacturing costs of tire enterprises. After the Spring Festival this year, rubber prices have fallen sharply, of which natural rubber (Shanghai) has fallen nearly 39% from the high point, cis-polybutadiene rubber (East China) has dropped nearly 49% from the high point, and the tire raw material cost pressure has been greatly alleviated. The company's profits are expected to improve in the second half of the year.
The proposed acquisition of Jinhu Tire is expected to become the world's leading tire company: the company's industrial merger and acquisition fund intends to acquire a 42.01% stake in South Korea Jinhu Tire Co., Ltd. Jinhu Tire is the second largest tire manufacturer in Korea and the 14th largest tire manufacturer in the world. The company operates globally and its tire products are sold to more than 180 countries around the world. In 2015, Jinhu Tire's revenue was about 16.8 billion yuan, 5.6 times that of Shuangxingxing. The current strength of Qingdao double Star is not only far away from international first-line tire enterprises, but also lacks advantages compared with domestic leading enterprises. If Jinhu is successfully acquired, Qingdao double Star will reach a new level in its competitive strength, which will not only take the lead in China, but also have a place in the international market, speed up the double Star tire to the world, help the company realize the global layout, promote the company's great-leap-forward development, and promote the rise of China's national tire industry.
Investment advice: the company's performance increased by 6.11% in the first half of 2017. At present, domestic tire channel inventory has returned to the normal level, and rubber prices have dropped a lot, and the company's performance is expected to improve in the second half of the year.
The company has become the ultimate buyer of Jinhu tire and is expected to become a leading tire company in the world. We estimate that the company's EPS will be 0.18,0.23,0.30 yuan respectively from 2017 to 2019, and the corresponding PE will be 38X, 30X and 23x respectively, maintaining a "highly recommended" rating.
Risk hint: the risk of a decline in the tire industry.