Main points of investment:
Event: the company released its third-quarter 2017 report that in the first three quarters of 2017, the company achieved operating income of 1.489 billion yuan, an increase of 50.13% over the same period last year, and a net profit of 91.8218 million yuan, down 7.58% from the same period last year. In the third quarter, the company achieved operating income of 552 million yuan, an increase of 20.50% over the same period last year, and a net profit of 29.0841 million yuan, down 45.59% from the same period last year.
Third-quarter revenue hit a 12-quarter high, with costs and expenses depressing profit performance. The company's quarterly revenue in the third quarter of 2017 was the highest since the third quarter of 2014. We believe that with the continuous recovery of infrastructure demand and the rise in the price of upstream raw materials, the volume and price of prestressed steel products have risen since the second half of 2016. Due to the sharp rise in wire rod prices, the significant increase in manufacturing costs, the increase in financial expenses caused by the appreciation of the RMB, and the high base in the same period last year, the company's profitability declined to a certain extent in the third quarter. The company's operating cost in the first three quarters reached 1.228 billion yuan, an increase of 61.45% over the same period last year, and the financial expenses in the first three quarters reached 6.4204 million yuan (- 13.4175 million yuan in the same period last year).
The integration of Beijing, Tianjin and Hebei and Belt and Road Initiative opened up the growth space for the company. The company is a leading enterprise in the prestressed steel products industry, with unique advantages in production capacity, technology, products and customer network.
At present, the company has five production bases, with an annual production capacity of 500000 tons of prestressed steel products. It is the mainstream supplier of prestressed steel for railway, highway, water conservancy, civil construction and special prestressed concrete structures in China. With the promotion of the integration of Beijing, Tianjin and Hebei, and the implementation of Belt and Road Initiative's strategy, the production capacity of the company's Hebei branch base, Baozelong base and Xinjiang Urumqi base is expected to be fully released, providing long-term support for the company's long-term development. At present, there are about 240 domestic prestressed steel products manufacturers, and the market pattern is relatively scattered. As the leader of the industry, with the stricter environmental supervision and the continuous promotion of the industry capacity, the market share is expected to further increase.
The space of high-speed railway track slab and subway track slab is opened. The company has horizontally expanded the technology in the field of prestressed steel products and become the main developer of the intelligent production line of CRTS Ⅲ pretensioned ballastless track plate and track plate assembly. At present, it has 4 production bases of high-speed rail plate. According to our estimates, the market space for high-speed rail and subway track plate is more than 5 billion yuan per year, and the company has successfully supplied Zheng-Xu high-speed railway, Beijing-Shenyang high-speed railway and Shanghe-Hangzhou high-speed railway, and will radiate the East China market through the joint venture Shangtie Wuhu track Plate Co., Ltd. The company's latest research and development of two-way pretensioned prestressed concrete composite damping track slab, the first test section will be laid in Tianjin Metro Line 5, Line 6 and Urumqi Metro Line 1.
Profit forecast and investment rating: we believe that as the company will continue to benefit from capacity expansion and downstream infrastructure demand, the high-speed rail slab, subway track plate and rail business will significantly enhance the company's profitability and facilitate the company's valuation switch. From 2017 to 2019, the company is expected to achieve operating income of 1.95 billion yuan, 2.4 billion yuan and 2.65 billion yuan, net profit of 144 million yuan, 200 million yuan and 245 million yuan, EPS of 0.36 yuan, 50 yuan and 0.61 yuan, and corresponding PE of 46.1X/33.3X/27.2X.
Maintain the "highly recommended" rating.
Risk tips: wire rod prices fluctuate sharply, high-speed rail and subway track plate business development is not as expected.