Items:
The company issued its 2017 annual performance forecast on November 28, and is expected to achieve a net profit of 220 million to 2.4 billion yuan during the reporting period, an increase of 43.80% to 56.87% over the same period last year. The growth is mainly due to the rapid growth of the main business and the consolidation of Xingke Electronics in March.
In the same period, the company issued a pre-disclosure announcement on the reduction of shares held by directors and senior executives, and the three senior executives planned to reduce their holdings of no more than 0.41% of the company's total share capital within six months, due to the individual tax funds used for equity incentive exercise and the repayment of equity exercise financing funds. Our comments on the above incidents are as follows:
Comments:
The main reason for the pre-increase is that the main business is growing rapidly and the leading position is stable. The company has been ploughing the modified plastics business for many years, and the volume and profit of this traditional business has increased this year. On the one hand, the scale effect of early production capacity expansion has been highlighted, and the profitability has been improved under the background of strong demand; on the other hand, the company has improved the level of fine management, further strengthened cost control and improved profit margins. The annual growth rate of the main business sector is expected to be more than 50%, with a net profit of 90 million yuan.
The second main reason for the pre-increase: Xingke and table, the diversified customer strategy is well promoted and the management is good. Xingke has emerged from the shadow of the Letv incident and is now actively adjusting its strategy to promote customer diversification. It has reversed its losses in the second quarter. At present, it does not rely on a major customer and supplies products to hammer, A customer, OPPO, Meitu, XIAOMI and other brands, and its business continues to improve. The company completed the acquisition of the remaining 66.2% equity of Xingke in March this year, and the profit contribution of the latter has changed from the original investment income (280 million yuan in 2016 net profit, including 90 million yuan in investment income of the parent company) to 100% consolidated statement starting in March (the net profit for the whole year of 2017 is expected to be 130-140 million yuan, contributing to the net profit of the parent company of 120-130 million yuan).
Reduction plan: the amount of the proposed reduction does not exceed 0.41% of the total equity, with almost no impact. In this "share reduction plan notification letter", Lin Dengcan, director and general manager, Huang Jingdong, director and deputy general manager, and Gu Xianfeng, chief financial officer, plan to reduce their holdings of no more than 0.41% of the company's total share capital within six months after the 15 trading days after the announcement (December 20), including no more than 0.18% from December 20, 2017 to December 31, 2017. At present, the three executives hold 0.85%, 0.21% and 0.16% of the company's shares respectively (a total of 1.22%), and the proposed reduction accounts for 29%, 43% and 44% of their holdings, respectively.
The reason for the reduction: the reduction of senior executives' holdings is the financing needed for the exercise of equity incentives. This time, the three executives plan to reduce their holdings, mainly for the capital requirements to pay personal income tax due to the exercise of stock options and the unlocking of restricted stocks, as well as to repay the financing funds for the exercise of stock options. We believe that this reduction is due to the regular capital needs of senior executives and does not reflect their views on the long-term development of the company.
Risk factors: 1. The competition of modified plastics and metal CNC industry intensifies; 2. The investment and development of cobalt and other metal raw materials is uncertain; 3. The price of raw materials fluctuates.
Maintain a "buy" rating. We are optimistic about the good development of the company's traditional business, Xingke's new order volume and its layout in the new energy industry chain, maintaining the company's annual EPS forecast of 0.41 yuan 0.76 PE in 2017-18-19, maintaining the target price of 22.70 yuan and maintaining the "buy" rating according to the 30 times PE in 2018.
