Investment logic
Heavy machinery leader, performance certainty hit bottom rebound: the company is China's heavy machinery leader, with domestic top, world-class heavy machinery manufacturing capacity and R & D strength. China's heavy machinery industry has declined as a whole since the financial crisis in 2008, and the company's performance has also suffered a decade of downturn with the industry. In 2016, the company's operating income hit a record low and its performance lost a lot of money. However, after a comprehensive plan to get rid of the burden, the company's business has improved significantly this year, with revenue rebounding to an all-time high in the first three quarters and profits turning around. The company has issued a performance forecast for 2017, which is expected to achieve a net profit of 84 million yuan and a new order of 12.25 billion yuan for the whole year, an increase of 50.9% over the same period last year.
China's petrochemical industry has been clustered and upgraded, and large-scale refining and chemical projects have opened trillions of investment: since 2015, China has proposed to build seven petrochemical industry bases, which will gather future mainstream large-scale refining and chemical projects. at present, China has 15 large-scale refining and chemical integration projects under construction / proposed, with a total investment of nearly 800 billion yuan; at the same time, China Petroleum & Chemical Corp Group will also build four world-class refining and chemical bases during the 13th five-year Plan period, with a total investment of 200 billion yuan. According to the existing plan, the total investment in China's refining and chemical industry will be close to trillion yuan during the 13th five-year Plan period, which is much larger than that in the past, and will be concentrated in the next three years.
The company's on-hand orders have gone beyond history, and upward flexibility is expected to remain at its peak in the next three years: we judge that this construction cycle will significantly boost the performance of refining and chemical equipment suppliers, along with the continuous release of demand. equipment manufacturers are expected to see significant increases in revenue and gross profit margins. As the absolute leader in the field of static equipment in our country, the company will benefit from the certainty of this round of purchase orders. The company has won the supply order for Zhejiang Petrochemical Refining and Chemical Integration Project, with a contract size of more than 1.5 billion yuan, the highest in history. Based on this ratio, we estimate that the company's average annual revenue in the refining sector in the next three years will be the same as the historical peak in 2012; at the level of 30% gross profit margin, it will correspond to the annual gross profit elasticity of refining and chemical equipment of about 900 million yuan.
Valuation and investment advice
The company is the representative of China's heavy machinery industry, we judge that the company is expected to reverse with a number of downstream, start a high economic cycle of more than three years. We estimate that in 2017-2019, the company is expected to achieve revenue of 80.67% 99.14max 12.20 billion yuan, a year-on-year growth rate of 151.7%, 22.9%, 21.2%, and a net profit of 0.84, 447,1036 million yuan, with a year-on-year turnround of losses / + 435.5%, and diluted EPS0.012/0.065/0.151 of 131.5%. For the first time, we give the company an "overweight" rating, with a target price of 4.50 yuan for 6-12 months, corresponding to 69X18PE and 30X19PE.
Risk
International oil prices fluctuate sharply; competition in the Asian refining market intensifies.
