Main points of investment:
Event: the company released its third-quarter 2017 earnings report on the evening of October 30, 2017. In the first three quarters of 2017, the company achieved revenue of 12.894 billion yuan (YOY16.72%) and net profit of 100 million yuan (YOY-42.62%).
Income grew steadily, and the rise in the price of raw materials led to a year-on-year loss of profits. The revenue of the company in the first three quarters of 2017 increased by 1.847 billion yuan (YOY16.72%) compared with the same period last year, but due to factors such as the increase in the price of raw materials, the company's gross profit margin decreased by 2.22 percent year-on-year, so gross profit decreased by 126 million yuan (YOY-13.11%). Due to the decline in market development costs and the adjustment of financing structure, the company's expenses during the period decreased by 73 million yuan compared with the same period last year (YOY-10.10%, expense rate decreased by about-1.5%), so operating profit decreased by 51 million yuan (YOY-30%) compared with the same period last year. In addition, due to the M & An income of more than 2900 million yuan in the same period last year, the non-operating profit of the current period decreased by 29 million (YOY-69.05%) compared with the same period last year, the total final profit decreased by 80 million yuan (YOY-37.74%), and the homed net profit decreased by 78 million yuan (YOY-42.62%).
Power cable business: the national network won the total number of packages the largest number of cable manufacturers, optimistic to benefit from the continuous construction of the downstream power grid. According to the guiding ideology and overall goal of the national 13th five-year Plan, the "one special four" strategy and power substitution strategy will speed up the construction of smart grid with UHV power grid as the backbone and coordinated development of power grids at all levels. The business of power cable and bare wire is the main support of the company's revenue. at present, the company has successfully achieved full coverage of all 27 provincial bureaus and five major power generation groups in China. Especially after the "Okai Cable incident" this year, the company's orders for major projects have increased significantly. We believe that the company's relevant main performance is expected to benefit from the continuous construction of the downstream power grid in the future.
Equipment cable business: continue to expand, optimistic about the future relying on AVIC industry to grow into aerospace cable leader. The company's cable products continue to expand to the high-end equipment market. At present, the equipment cables are widely used in aircraft, military industry, warships, marine industry, nuclear power, rail transit, electrical equipment and other high-end equipment fields. The company has currently completed the cash acquisition of 51% of Changzhou Jinyuan Copper (and plans to acquire 97.37% by December 31, 2019). Jinyuan Copper specializes in producing copper rods, copper wires and other copper products, with a net profit of 66.5547 million yuan in 2016. After the completion of this acquisition, the company increased the production capacity of low-oxygen bright copper rods, quickly entered the field of high-end special precision conductors such as high-end electromagnetic wires and enamelled wires, and at the same time contributed to the development of special high-end cable business such as aerospace conductors. further consolidate and increase the market share of aerospace and other special high-end cable segments. Baosheng Group joined AVIC in 2014. At present, the Mechanical and Electrical Systems Company supports Baosheng Group to become a major supplier of aviation cables, and is optimistic that the company will grow into a leading supplier of aerospace cables with the help of the group platform.
Bare wire and its products business: the gross profit margin is low, the acquisition of Jinyuan Copper will help to create a cost advantage. The company's bare wires and their products are mainly used in wire and cable conductive cores, accounting for a relatively high income, but the overall level of gross profit margin is low. We believe that after the acquisition of Jinyuan, the company will gain the existing technology and cost advantages of Jinyuan Copper, which is expected to form a synergy advantage with the bare wire business.
The first phase of employee stock ownership encourages the long-term development of the company. On the evening of August 28, 2017, the company issued the first phase of employee stock ownership plan (preliminary plan) announcement. According to the announcement, the employee stock ownership participation for the company's senior executives, core business / technical backbones and other personnel who need to be motivated, the total number of no more than 6000 people, including no more than 20 senior executives.
The total amount of funds held by employees shall not exceed 100 million yuan, and the sources of funds shall be the legal remuneration of employees, self-raised funds and other ways permitted by laws and regulations. The lock-up period of the employee stock ownership plan is 1 year and the duration is 3 years. This time, the company plans to carry out the first phase of employee stock ownership, which will establish a benefit-sharing mechanism, deepen the incentive system of the company's headquarters and subsidiaries, fully mobilize the enthusiasm and creativity of employees, attract and retain excellent management talents and business backbones, and promote the long-term development of the company.
Profit forecast and investment advice. It is estimated that the EPS of the company from 2017 to 2019 is 0.18,0.23,0.30 yuan respectively. With reference to the average PE valuation level of the comparable company in 2018, the company was given a valuation of 26 times PE in 2018, with a target price of 5.98 yuan and an "overweight" rating.
Risk hint. The cost control of cable raw materials is uncertain; the competition in the power cable market is intensified; and the progress of new products of high-end equipment and cables is not as expected.