Main points of investment:
Event: the company released its 2017 semi-annual report on the evening of August 29, 2017. In the first half of 2017, the company achieved an operating income of 7.902 billion (YOY9.35%) and a net profit of 68.64 million yuan (YOY-23.72%).
The decline in gross profit margin affects overall performance. Benefiting from the increase in newly signed orders, scheduling contracts, the number of bids and the winning rate compared with the same period last year, the company's revenue in the first half of 2017 increased by 676 million (YOY9.35%) compared with the same period last year, but due to factors such as the increase in the price of raw materials, the company's gross profit margin decreased by 34.37 million (YOY5.90%) compared with the same period last year. Operating profit increased by 2.44 million (YOY3.07%), but non-operating profit decreased by 17.42 million yuan compared with the same period last year due to a 28.23 million year-on-year decrease in expenses over the same period last year (YOY-6.44%, mainly due to a decrease in sales expenses caused by a decrease in market development costs by 36.14 million and a 17.34 million decrease in financial expenses due to the adjustment of financing structure). It is mainly due to the fact that the investment cost of the previous period of subsidiaries, joint ventures and joint ventures is less than the fair value of identifiable net assets), and the total company profit and return net profit decreased by 14.98 million (YOY-14.10%) and 21.34 million (YOY-23.72%) compared with the same period last year.
Power cable business: the national network won the total number of packages the largest number of cable manufacturers, optimistic to benefit from the continuous construction of the downstream power grid.
According to the guiding ideology and overall goal of the national 13th five-year Plan, the "one special four" strategy and power substitution strategy will speed up the construction of smart grid with UHV power grid as the backbone and coordinated development of power grids at all levels. The business of power cable and bare wire is the main support of the company's revenue. at present, the company has successfully achieved full coverage of all 27 provincial bureaus and five major power generation groups in China. Especially after the "Okai Cable incident" this year, the company's orders for major projects have increased significantly. We believe that the company's relevant main performance is expected to benefit from the continuous construction of the downstream power grid in the future.
Equipment cable business: continue to expand, optimistic about the future relying on AVIC industry to grow into aerospace cable leader.
The company's cable products continue to expand to the high-end equipment market, the current equipment cables are widely used in aircraft, military industry, warships, marine, nuclear power, rail transit, electrical equipment and other high-end equipment fields. The company is currently pushing ahead with the proposed cash acquisition of a 51% stake in Changzhou Jinyuan Copper (and plans to acquire a 97.37% stake by December 31, 2019). According to the Major Asset purchase report (draft), Jinyuan Copper specializes in producing copper rods, copper wires and other copper products, with a net profit of 66.5547 million yuan in 2016. If the acquisition is completed, the company will increase the production capacity of low-oxygen bright copper rods, quickly enter the field of high-end special precision conductors such as high-end electromagnetic wires and enamelled wires, and at the same time contribute to the development of special high-end cable business such as aerospace conductors, further consolidate and increase the market share of aerospace and other special high-end cable segments. Baosheng Group was listed in the AVIC industry in 2014. at present, the mechanical and electrical systems company supports to build Baosheng Group into a major supplier of aviation cables, and is optimistic that the company will grow into a leading supplier of aerospace cables with the help of the group platform.
Bare wire and its products business: the gross profit margin is low, the acquisition of Jinyuan Copper will help to create a cost advantage. The company's bare wires and their products are mainly used in wire and cable conductive cores, accounting for a relatively high income, but the overall level of gross profit margin is low. We believe that with the acquisition of Jinyuan, it will gain the existing technology and cost advantages of Jinyuan Copper, and is expected to form a synergy advantage with the bare wire business.
The first phase of employee stock ownership encourages the long-term development of the company. On the evening of August 28, 2017, the company issued the first phase of employee stock ownership plan (preliminary plan) announcement. According to the announcement, the employee stock ownership participation for the company's senior executives, core business / technical backbones and other personnel who need to be motivated, the total number of no more than 6000 people, including no more than 20 senior executives.
The total amount of funds held by employees shall not exceed 100 million yuan, and the sources of funds shall be the legal remuneration of employees, self-raised funds and other ways permitted by laws and regulations. The lock-up period of the employee stock ownership plan is 1 year and the duration is 3 years. This time, the company plans to carry out the first phase of employee stock ownership, which will establish a benefit-sharing mechanism, deepen the incentive system of the company's headquarters and subsidiaries, fully mobilize the enthusiasm and creativity of employees, attract and retain excellent management talents and business backbones, and promote the long-term development of the company.
Profit forecast and investment advice. It is estimated that the EPS of the company from 2017 to 2019 will be 0.25,0.31,0.39 yuan respectively. With reference to the comparable company's average PE valuation in 2017, the company is given a valuation of 30 times PE in 2017, with a target price of 7.50 yuan, maintaining a "buy" rating.
Risk hint. The cost control of cable raw materials is uncertain; the competition in the power cable market is intensified; and the progress of new products of high-end equipment and cables is not as expected.