Main points of investment
Company summary: private high-end automotive lubricating oil enterprises. Qingdao Compton is a professional manufacturer and service provider of lubricating oil and automotive maintenance products. Its Compton brand lubricating oil and Lu Bang brand automobile maintenance products marketing network spread all over the country and was ranked as one of the top 10 in China's lubricating oil industry in 2015. Automotive lubricating oil is the most important business of the company and the main source of gross profit margin. Sales of automotive lubricants in 2016 were 46500 tons, accounting for 73% of the company's total sales.
Industry demand: the consumption of automotive lubricating oil is growing rapidly, and the trend of high-end is obvious. The lubricating oil market is skewed towards automotive use. From 2000 to 2015, the consumption of automotive lubricating oil exceeded 14% of CAGR. Considering that the growth rate of car ownership in China is faster than that of new cars at this stage, the growth rate of the automotive lubricating oil OEM market is expected to be 5% 10% and the AM market growth rate will be more than 10%. The increase in the proportion of high-end cars has led to the consumption of middle and high-end lubricants. In the past three years, the mainstream product level of passenger car lubricating oil in China has leapt to SM and SN, basically synchronizing with the whole world.
Industry supply: automotive lubricating oil supply is scattered, manufacturers echelon level is distinct. At present, the supply of automotive lubricating oil market is still highly scattered, and there are about 200 lubricating oil suppliers in the country. There are three echelons: 1) the high-end lubricating oil market is basically controlled by international oil companies' brands, including Mobil and Castrol, etc.; 2) the mid-market, dominated by OEM and major customers, is mainly occupied by "Kunlun" and "Great Wall" by Petrochina Company Limited and China Petroleum & Chemical Corp. 3) A large number of private enterprises compete in the middle and low end market. Some private enterprises (represented by Compton) adopt differentiation strategy and focus on attacking the high-end product market.
Company positioning: high-end brand positioning + strict channel management. In the AM market of automotive products, Compton Lubricants keep an eye on international first-tier brands in terms of brand and price positioning. It is one of the few domestic enterprises with the right to use the API logo. The company takes advantage of the opportunity of listing to strengthen publicity. Since 2016, we have reached strategic cooperation with Mobil and Hyundai Korea, and actively carried out brand promotion activities. As of mid-2017, the company has more than 600 dealers and a marketing network covering 30 provinces and cities. The company has established a strict dealer management system to effectively maintain the product price system and brand image.
Company profit: expand capacity to increase growth, gross profit margin is subject to the rise in the price of raw materials. The company currently has a total production capacity of 40,000 tons, with a capacity utilization rate of 133% in 2016. It is expected that 80,000 tons of production capacity will be put into production in 2017, which is expected to support sales growth around 2018-2020 CAGR=30%. In terms of gross profit margin, the price of lubricating oil feedstock base oil fluctuates with the international oil price, while the product has a strong consumption attribute, and the price fluctuation range is relatively small. So low oil prices are good for corporate gross margins. On the contrary, if the international oil price rises sharply, it may face the risk that it is difficult to fully pass on the cost and the gross profit margin will decline.
Risk factors. 1) the risk that the decline of the company's brand image will lead to a decline in prices; 2) the sharp rise in international oil prices will lead to an increase in the price of base oil, squeezing the risk of the company's gross profit margin; 3) poor dealer management affects the brand image, or the risk that sales growth is difficult to achieve due to insufficient dealer incentives.
Profit forecast, valuation and investment rating. The company is expected to have an annual EPS0.80/0.97/1.10 of 25% and a CAGR of 25% in 17-18-19. The current share price corresponds to PE31/26/23 times, slightly higher than the industry average. Optimistic about the growth of the automotive lubricating oil industry, the company focuses on the front line, focusing on brand building and dealer management. Considering that the company's new capacity is expected to be released in 2018, it will be given 30 times PE in 2018, corresponding to the target price of 29.1 yuan, giving the "overweight" rating for the first time.
