Incident: The company recently released its third quarter performance report. In the third quarter, the company achieved operating income of 79.119 million yuan, a year-on-year decrease of 12.11%, and net profit of 18.5904 million yuan, an increase of 30.84% over the previous year. Overall, the company achieved total operating income of 237 million yuan in the first three quarters, a year-on-year decrease of 7.28%, and net profit for the first three quarters totaled 35 million yuan, an increase of 2.49% over the previous year.
Comments:
Rail transit and nuclear power are trending upward, and ventilation leaders are expected to continue to benefit: the company focuses on R&D and sales of ventilation system equipment such as fans in subways, tunnels, nuclear power, civil and industrial fields. Rail transit has a market share of more than 50%, and its dominance is difficult to shake. During the “13th Five-Year Plan” period, China's completed urban rail transit investment will reach 2.85 trillion yuan. In the medium to long term, rail transit line encryption and high-speed rail acceleration will follow the general trend. The next three years will be a concentrated period for construction and completion. Demand for subway ventilation systems is strong, and the company may usher in explosive opportunities. At the same time, there are very few domestic enterprises with nuclear power fan qualifications. The company focuses on expanding and laying out the nuclear power fan field, and will be the first to benefit in an environment where nuclear power approval is promoted and nuclear power is restarted.
The acquisition of high-quality military enterprises will soon be merged to create high-end equipment manufacturers integrating military and civilian: Hongxiang Technology and Zhongqiang Technology respectively specialize in infrared and ultraviolet imaging products and stealth technology products. They are technically complementary, which will promote the diversified development of the company's products and optimize the industrial layout. According to the announcement, Hongxiang Technology and Zhongqiang Technology are expected to be included in the scope of the consolidated statement starting in November 2017. The company's 2017 results will combine Hongxiang Technology and Zhongqiang Technology's total net profit from 11-December 2017. In 2017, the company expects a profit of about 119.434 million yuan to 136.496 million yuan, an increase of 180%-220% over the same period last year. It is in line with previous expectations. After the restructuring is completed, the company's profit level will improve markedly and gradually become a “high-end equipment manufacturer with civil-military integration.”
Investment recommendations and ratings: Regardless of the impact of this acquisition, the net profit of the company's main business in 2017-2019 was 51 million, 65 million, and 73 million. The corresponding EPS was 0.32 yuan, 0.41 yuan, and 0.46 yuan, and PE 117 times, 92 times, and 82 times. Considering this merger and acquisition, Hongxiang and Zhongqiang began merging in November 2017. Net profit for 2017 is expected to be 130 million yuan, and net profit for 2018-2019 is 350 million and 4.1 billion yuan, giving it a “buy” rating.
Risk warning: Rail transit ventilation business development falls short of expectations, military business development falls short of expectations