Key points of investment:
Leading domestic investment in aluminum alloys, with three major business layouts for civil and military materials and 3D printing. The company specializes in research, production and sales of aluminum alloy heat transfer materials and polymetallic composites. The company participated in the establishment of Feilkang in 2012 to enter the field of 3D printing, and entered the field of military materials in 2014. Currently, it has three major businesses: civilian, military materials and 3D printing.
Military materials business: The military aluminum alloy market has great potential, and the inflection point of the company's military products business is getting closer, and we are optimistic about future development. Aluminum alloy/aluminum-based composites are one of the key materials in the military industry. They play an important role in reducing the weight of army equipment and in reducing the weight of navy/air force equipment, and have great market potential. Since 2014, the company has cooperated with relevant military research institutes and participated in several new equipment research and development. Some products have already been shipped in small batches. Currently, all relevant qualification certifications have been completed, and the subsidiary Yinbang Defense is used as a platform to promote military products business. According to the semi-annual report, some of the company's military products projects are expected to receive batch orders this year. It is believed that some military products will soon enter the batch supply stage. We believe that the inflection point of the company's military goods business is gradually approaching, and we are optimistic about future development.
3D printing business: 3D printing is the key to technological innovation in military equipment manufacturing. Civilian products are widely used, and the company is expected to get a share of the vast market in the future. 3D printing is the key to future military manufacturing innovation. It has been applied to military aircraft and aviation turbofan engines such as J-20, J-31, and Yun-20; at the same time, it is widely used in many civilian fields such as civil aviation and medicine. The subsidiary Feierkang is a leading metal 3D printing company in China and a leading international supplier of titanium alloy powder. Currently, it is COMAC's official qualified batch supplier of 3D printing parts, and the only supplier of 31 metal 3D parts on C919. We believe that China's 3D printing will develop rapidly in the next few years. The market size is expected to reach 30-45 billion yuan in 2020. At the same time, C919 orders 600 units, and the company's 3D printing related business is expected to participate in sharing the broad market.
Civil materials business: Performance is expected to benefit from the release of production capacity+improvement in gross margin and operating efficiency+expansion of downstream demand. The company ranks among the highest in the industry in terms of production and sales of civil materials products. Currently, customers include Valeo, Midea, Gree, Supor, Huawei, Oppo, etc. On the one hand, the company's IPO fundraising project in 2016 freed up production capacity, while product gross margin and daily operating efficiency improved. On the other hand, according to the semi-annual report, mass production of the new alloy developed by the company for Tesla has already begun. Furthermore, the first mobile phone using the company's materials has already been put on the market in batches, and it is believed that it will appear on more phones soon. We believe that the company's civil materials-related performance is expected to continue to benefit from the release of production capacity, improved operating efficiency, and the expansion of demand for downstream applications in the future.
Complete two phases of employee shareholding, which is optimistic about stimulating the company's long-term development. The company officially completed the second phase of the employee stock ownership plan in June 2017. A total of 133 participants were the company's core personnel and key employees. The funding came from the employees themselves. Buying 18083 million shares of the company (accounting for 2.20% of the company's total share capital) with an average purchase price of 8898 yuan/share, we expect that the employee stock ownership plan will form a long-term and effective incentive and restraint mechanism to fully mobilize the enthusiasm and creativity of employees, and better promote the company's long-term stable development in the future.
Profit forecasts and investment recommendations. The company's 2017-2019 EPS is expected to be 0.25, 0.42, and 0.55 yuan respectively. Combined with comparable company valuations, the company was given 55 times the PE in 2017, with a target price of 13.75 yuan, and a purchase rating.
Risk warning. (1) Uncertainty about military orders; (2) Competition in the civilian goods market intensifies; (3) Cost control of aluminum materials falls short of expectations.