“One new” sees a sustainable growth in new business development performance:
The company has completed the acquisition of 100% of the shares of Shenzhen Hengbo Commercial Chain Co., Ltd. (Hengbo for short) using raised capital of RMB 2170 million. Its main business has added mobile Internet terminal business, which mainly includes cooperation with operators and major terminal manufacturers to carry out sales, after-sales and value-added services for mobile smart terminal products, digital consumer products and accessories such as online and offline integrated O2O models. Hengbo is a national strategic partner of China Mobile, China Telecom, and China Unicom, and has many leading resources, including virtual operator licenses, in the operator resale business. At present, Hengbo has become one of the largest specialty retail chains in the country. In terms of e-commerce, Tmall and Jingdong's Hengbo flagship stores all rank in the top three in the industry. Hengbo aims to build an intelligent full-ecosystem Internet platform for mobile terminals on a scale of 100 billion, and strives to become a comprehensive service provider and platform operator for the mobile intelligence industry chain. In 2017, H1 Hengbo achieved revenue of 5.424 billion yuan and net profit of 127 million yuan (according to previous promises, 2017 was 297 million yuan). Considering the pattern of terminal sales outbreaks associated with operators in the second half of the year (including the influence of holiday factors such as Mid-Autumn Festival, National Day, and Double Eleven), it is expected that this year it will exceed its stated promises. With the continuous improvement of Hengbo's commercial business channel capabilities (including in-depth cooperation with Internet companies in the fields of smart stores, precision marketing, e-commerce, product promotion, operation and maintenance, etc.) and the addition of the development and operation of value-added mobile internet software, games, and telecom products for customized terminals, there is great certainty that future performance will continue to grow.
“Two new things” look at traditional businesses as they usher in new opportunities:
The company's original traditional business, flat glass and glass deep processing, has ushered in new opportunities in the industry. On the one hand, due to environmental compliance, the company's competitiveness is outstanding, and bargaining power has been effectively enhanced, mainly due to the significant results achieved by the company's high-investment treatment in recent years. The main pollutants have been discharged. At the same time, the company's three-in-one operation model of glass production, waste heat generation, and environmental protection facilities has been gradually improved. On the other hand, since the company has formed a mature production and operation model integrating supply, production and marketing, the results have been remarkable. In 2017, H1's traditional business achieved revenue of 587 million yuan, an increase of 14.2% over the previous year, and net profit increased more than tenfold. Overall, according to statistics related to the glass industry, glass production increased slightly year-on-year in the first half of the year, but inventories were still at a historically low level, and the overall benefits of the industry were better than expected. On a month-on-month basis, the marginal demand is expected to continue to improve in the second half of the year. The company will further develop its traditional main business and expand production in due course in accordance with the industry policy of “removing production capacity, repairing shortcomings, restructuring, steady growth, and increasing efficiency” to catch up with traditional business development opportunities.
“Three new things” look at the vitality and stimulation of the company's new management structure:
Three Gorges New Materials was initially founded jointly by the Hubei Dangyang Glass Factory, Hubei Yingcheng Gypsum Mine, and Dangyang Electric Power Joint Venture Company. It is mainly managed under the leadership of the Dangyang State-owned Assets Administration and is a state-owned holding company. After many capital increases and stock expansions, especially after completing the acquisition of 100% of Hengbo's shares through a non-public offering of shares in 2016, the company's equity management structure became clearer and more privatized. Currently, the company's largest shareholder (domestic natural person) directly holds 17.85% of the company's shares, 5.48% of the company's shares through Hainan Zongxunda, and 4.76% of the shares of Dangyang Zhongan Control Company, accounting for 28.09% of the company's total share capital. It is the company's largest shareholder. Dangyang State-owned Assets Administration holds 5.64% of the shares. The company recently predicted a profit of 25—280 million yuan in Q3 2017, with steady growth in performance. It is believed that in the future, the company will further “strengthen incentives, highlight dual businesses, and improve efficiency” and combine market-based, structured and institutionalized mechanisms to activate the company's vitality, enhance overall competitiveness, and ensure the company's performance continues to grow steadily.
Investment advice: The company's earnings per share in 2017-2019 are expected to be 0.33 yuan, 0.42 yuan, and 0.50 yuan. The corresponding PE is 30.95 times, 24.80 times, 20.54 times, and the company is given a 40 times PE estimate. The corresponding target price is 13.3 yuan, covered for the first time, and given the company a purchase rating.
Risk warning: The development of the mobile Internet terminal business fell short of expectations, and glass production capacity was limited.