Main points of investment:

Recently, we visited the headquarters and factory of Boshen tools and communicated with the management of the company. We are optimistic about the development of brake pads in the field of rail transportation, the product upgrading of Taurus Grinding, the subject of M & A, and the recovery of the company's original main diamond tools business. The main points of the company's investment are summarized as follows:

1. The powder metallurgy brake pad of EMU has achieved a breakthrough from research and development to sales.

The company has accumulated more than 20 years of technology in the field of powder metallurgy and successfully developed high-speed train brake pads. On December 4, 2017, the company received the Railway Product Certification Certificate issued by CRCC (China Railway Inspection and Certification Center), which is valid until January 4, 2021. The company's "300-350km/h and above EMU powder metallurgy brake pads" has obtained the official product certification of CRCC, creating conditions for its large-scale production and marketing.

The company announced on December 25, 2017 that the EMU brake plate of Zhengzhou Railway Bureau won the bid for a package with a quantity of 2000 pieces, with an amount of 4.03 million yuan, applicable model CRH380B. It marks a breakthrough in the company's high-speed train brake pad project from research and development to sales.

The product certification of powder metallurgy brake plate CRCC for emus at speeds of 200km / h and 250km / h and the development of Chinese standard EMU brake pad are also advancing normally.

At present, the EMU brake plate market is mainly occupied by foreign companies, and domestic enterprises are in the development period of import substitution. In the domestic EMU brake plate industry, the company is the only one with long-term accumulation of production technology and technology in the powder metallurgy industry.

According to estimates, by 2020, the domestic EMU brake market demand of 1.44 million pieces / year. The company currently has a production capacity of 30,000 tablets per year. The production capacity of the production line under construction is 80,000 pieces / year, and the planned production line capacity is 300,000 pieces / year.

Automation and intelligent equipment will be used in the production line to turn off the light factory, the first light off factory in this field in China, and the intelligent manufacturing project that the country focuses on.

The production line is expected to reach production by the end of 2018 and the performance release is expected to be in 2019. The existing production capacity of 30,000 pieces will contribute to the performance in 2018.

2. Taurus Grinding, the subject of M & A, has obvious synergistic effect with listed companies, which makes a great contribution to the performance of the company.

The company's acquisition of Changzhou Taurus Grinding has completed the industrial and commercial change registration in December 2017, and Jinniu Grinding has become a wholly-owned subsidiary of the company. Since its establishment, the listed company has focused on the research and development, production and sales of diamond tools, power tools and alloy tools, belonging to the application industry of superhard materials in the abrasive tools industry; Taurus grinding is mainly engaged in the production, research and sales of coated abrasives, belonging to the abrasive tools industry sub-industry; the two customers overlap and the synergy effect is obvious. The company has an extensive overseas sales network, while Taurus grinding customers are mainly in China, and the two can expand sales to each other. At present, the company has set up a sales team in the United States to sell Taurus grinding products.

Taurus grinding products include sandpaper and abrasive cloth, which are widely used in the grinding and polishing of metal, wood, leather, glass, plastic, ceramics and other products, involving aerospace, aviation, automotive, shipping, machine tools, chemical, construction, metallurgy, energy, home appliances, electronics, furniture and other industries. At present, the income scale of Taurus Grinding ranks among the top five in the industry and the second in the profit scale industry. Being good at supply chain management makes Taurus Grinding has obvious advantages in cost control and has a certain say in the industry.

The high-end products of the coated abrasive industry are controlled by foreign countries. with the upgrading of the domestic manufacturing industry and the strong demand of the industry, Taurus grinding products have been used in 4S stores through the dealer system. The demand for Taurus grinding products is strong and the cash flow is abundant. In the past, all the development depended on endogenous growth, and the bottleneck mainly came from the limitation of production capacity. After this merger and acquisition, listed companies will provide capital, management, sales and other support for Taurus Grinding, which aims to turn Taurus Grinding into an industry leader.

Recently, Taurus Grinding has made a great contribution to the performance of listed companies, with a performance commitment of 82.5 million yuan / 97.5 million yuan / 111 million yuan in 2019.

3. Listed companies have entered a recovery period after the adjustment of their original main business, and the upward trend in the second half of 2017 is expected to continue.

The original main business of listed companies belongs to the application industry of superhard materials, including diamond tools, power tools and alloy tools, of which diamond tools is the core business, accounting for about 70% of revenue. The main production bases are located in Shijiazhuang, China and Luoyong, Thailand. The marketing network covers the world, with more than 300 dealers, about 60% of foreign income and 40% of domestic income.

The company went public in 2009, developed mainly through endogenous growth, and made mistakes in new product development, which dragged down the performance growth of the main business in recent years. After internal business adjustment, the company's business situation has been restored, and this trend is expected to continue in 2018.

The company disclosed in its third quarterly report that its performance in 2017 is expected to grow by 29%, 320%, 48.68 million yuan and 52.43 million yuan.

4. Profit forecast and risk hint.

We expect the company to achieve a net profit of about 0.56 billion yuan in 2017 and 2018, with a current market capitalization of 6.2 billion, with a "overweight" rating corresponding to 38 times the 2018 valuation.

Risk tips: EMU brake production line does not meet the expected risk, brake product failure risk, M & An enterprise integration risk and so on.