Core viewpoints

Central Asia shares is the domestic liquid food packaging machinery industry leader, leading technology, high-quality customer resources. Capacity bottleneck is an important factor limiting the company's revenue growth. The fund-raising project is expected to land in 2018 and will lead the company out of the capacity dilemma after reaching production. Extending from the dairy field to other areas has the first-mover advantage of technical and health standards, which is conducive to stabilizing the production and marketing rate of the company after production expansion. We believe that the company's performance growth is expected to reach a new level after 2018. With the breakthrough of production capacity bottleneck and the expansion of the company's customers to edible oil, daily chemical, beverages and other fields, the company's leading position is expected to be consolidated. It is estimated that the company's EPS from 2017 to 2019 will be 0.62,0.75,0.95 yuan respectively, giving the company a reasonable valuation level of 30-35 times PE in 2018, corresponding to the target price of 22.50-26.25 yuan.

Intelligent manufacturing, consumption upgrading and import substitution lead the growth of the industry

The smart packaging machinery industry will usher in three major growth drivers: smart manufacturing, consumption upgrading and import substitution. Intelligent and unmanned packaging production line is the development trend of the industry. We estimate that a set of intelligent back-road packaging equipment can help downstream customers save 2 million yuan in staff salary expenditure every year, and there is a broad space for promotion.

The wave of consumption upgrading will be beneficial to the development of China's liquid food industry in terms of quantity and quality, and promote the growth of demand for liquid food packaging machinery. With the rapid development of domestic enterprises in the intelligent packaging industry, import substitution is imperative, and domestic enterprises will usher in development opportunities. Market research agency Freedonia estimates that the average annual compound growth rate of domestic liquid food packaging machinery will be 6.89% from 2016 to 2021, and we believe that the growth rate of domestic enterprises will exceed this figure.

The two advantages of technology and customers enhance the core competitiveness and establish the leading position.

The technical level of the company's products is ahead of its domestic counterparts, and the technical level of some products has reached the international advanced level. With leading technology and quality service, the company has accumulated high-quality customer resources, such as Yili, Mengniu, Guangming and other domestic dairy giants. Dairy filling equipment has higher design and technical requirements, based on the dairy field, the company continues to expand the diversified customer structure in the fields of edible oil, daily chemical, medicine and beverage, which is helpful to maintain the leading position in the industry.

2018 production capacity release ushered in an increase in performance growth, covering the rating for the first time to increase holdings.

As the leader of dairy packaging machinery industry, based on the dairy field with higher technical requirements, the company has the first-mover advantage of expanding to other liquid packaging fields. IPO fund-raising projects are expected to form capacity release in 2018 to effectively solve the company's capacity bottleneck. We estimate that the EPS of the company from 2017 to 2019 is 0.62,0.75,0.95 yuan respectively, corresponding to PE29.40, 24.97,20.41 times. With reference to the comparable company Yongchuang Intelligence's valuation level of 33 times PE in 2018, and the company is in the leading position in the industry, we give the company a reasonable valuation level of 30-35 times PE in 2018, corresponding to the target price of RMB22.50-26.25, covering and giving the overweight rating for the first time.

Risk hint: the lack of production time in 2018 and 2019 due to the lack of schedule of fund-raising projects, the release of production capacity of fund-raising projects is not up to expectations, and the intensification of competition in the industry leads to a decline in product prices. The lack of new customer expansion leads to a decline in the production and sales rate.