Main points of investment:
Event: the company issued a suspension announcement on November 21, 2017, and on December 6, 2017, the company announced that it would purchase 55% and 45% of the shares of Dajin heavy Industries held by affiliated Fangjia Shipping Company and Chuang Dongfang Changteng with a total of 780 million yuan in cash and resume trading. This acquisition constitutes a major related party transaction, but does not constitute a major asset restructuring, upon completion, the company will hold a total of 100% stake in Dajin heavy Industry. In addition, based on the confidence in the company's future development prospects and the recognition of the company's long-term investment value, Mr. Liu Nan, the actual controller of the company, and his concerted action, Jiashan Enterprise, plan to increase their holdings of the company in the next 12 months. the total increase is not less than 100 million yuan.
Dajin heavy Industry EPC business platform, imports and exports account for 95% of Yangzhong City, and have military industry second-level confidentiality qualification. Founded in December 2012, Dajin heavy Industry is the platform and production base for the company's ship general contracting business. It can build high value-added ships such as 30000-ton bulk carriers, container ships, product oil tankers, chemical tankers, multi-purpose ships, water engineering ships and ocean engineering ships. At present, Dajin heavy Industry focuses on high-tech, high value-added and low-cost marine products, focusing on energy-saving and environmental protection (LNG-fueled) transport ships, special engineering ships and marine engineering auxiliary ships. it is the first shipyard in the country and even in the world to mass produce LNG power vessels. According to the company's resumption of trading announcement, Dajin heavy Industry achieved a net profit of 30.1793 million yuan in 2016 and 29.7991 million yuan from January to September 2017, accounting for about 95 percent of the city's import and export trade this year. In addition, Dajin heavy Industry also has the second-level military industry secrecy qualification.
The performance promises a total net profit of 527 million over the past 5 years, which will become a new growth point of the company's profits in the future, which is conducive to giving full play to the overall business cooperation. Dajin heavy Industries promised to achieve audited net profits of 70 million yuan, 93.3 million yuan, 119.56 million yuan, 121.04 million yuan and 123.43 million yuan respectively from 2018 to 2022, with a cumulative commitment of 52733 million yuan over five years. After the completion of this acquisition, Dajin heavy Industry will, on the one hand, add new profit points for the company, on the other hand, it will strengthen the internal relationship between the company's ship and sea engineering, clean energy, and civil-military integration. Dajin heavy Industry can carry out business contacts and complementary advantages with many subsidiaries of Tianhai Defense, enhance the synergy of various subsidiaries, create and improve the industrial chain, make the service chain interlinked, and achieve efficient coordination of business management.
The leader of the private military auxiliary ship is expected to be born, and is optimistic to achieve a 0-1 breakthrough. With the construction and development of China's Deep Blue Navy, we expect that the market scale of the navy's main warships will be nearly trillion in the next 30 years, and the corresponding market space for military auxiliary ships is also considerable. At present, relying on the strong strength of ship design and manufacturing and the qualification advantage of Jin Shipping military products manufacturing, the company explores and enters the military auxiliary ship market in time, in order to obtain sustained and high value-added orders, and is optimistic that the military auxiliary ship business will achieve a 0-1 breakthrough.
Profit forecast and investment advice. Taking into account the performance commitment of Dajin heavy Industry, it is estimated that the EPS in 2017-19 will be 0.18,0.29,0.38 yuan respectively. Combined with the average PE of comparable companies in 2018 and the valuation premium of military business, the company will be given a 30-fold PE in 2018, corresponding to the target price of 8.70 yuan, with a "buy" rating.
Risk hint. (1) the uncertainty of the progress of military auxiliary ships; (2) the fluctuation of marine industry market; (3) the performance commitment of Dajin heavy industry is not as expected.