Summary of the report:
2018 high-speed rail mileage planning to maintain a high level, EMU procurement demand is expected to meet a small peak
Recently, the Railway Federation held a working meeting, which made clear arrangements for railway investment in 2018. The new mileage of high-speed rail is maintained at a high level, and EMU procurement is expected to meet a small peak. The new mileage of 3038 km was completed in 2017, with high-speed rail accounting for 88%, or about 2700 km. In 2018, 4000 km of new lines are planned to be put into production, of which 3500 km are planned for high-speed rail, an increase of nearly 30% compared with the same period last year. At the same time as the opening mileage, the purchase scale of EMU in the next three years and the investment of 732 billion yuan in the railway industry in 2018 are also announced. We believe that although the total investment quota is lower than the average annual scale of more than 800 billion yuan in the previous two years, after adding the procurement volume of inter-city routes, the procurement demand of EMU still has a substantial increase compared with the previous two years, and it is expected that the tender scale of EMU will remain at an average annual level of more than 400 trains in the next three years.
The industrialization of brake pads for high-speed railway has landed, and the subsequent projects will gradually exceed the standard.
The company is currently one of the three major companies with CRCC certification and 350km qualification for high-speed rail brake pads in the market. On December 25, the company announced that the China Railway Construction Investment Corporation had won the bid for 2000 pieces of railway operation materials joint procurement project (EMU brake pads), with an amount of 4.03 million yuan, which means that the industrialization of the company's high-speed railway brake pads has landed. Domestic standard EMU brake pads according to the current price of 2000 yuan per piece, the retention of 3800 standard EMU, each car according to the frequency of updating brake pads 2.5 times a year, the current market space is about 6 billion yuan, 80% of which are imported from abroad. It is expected that with the acceleration of the tender for the "Fuxing" EMU, the import replacement process of brake pads for the company's high-speed rail will be accelerated, which is expected to contribute new profit growth points for the company.
Dingzeng's acquisition of Taurus Grinding and its entry into coated Abrasives will contribute to a new profit growth point.
The company is a leading manufacturer of diamond tools in China, and its main business has been weak in recent years. Recently, it bought 100% equity of Taurus Grinding with 1.2 billion (cash consideration 23.6% and share consideration 76.4%) and entered the field of coated abrasives at an issue price of 12.25 yuan per share. Based on the 17-year committed net profit, the acquisition of PE is about 15 times. Taurus Grinding promised net profits of 0.825 yuan, 0.975 yuan and 111 million yuan respectively in 2017-2019. At present, the increase has been approved.
Profit forecast and investment suggestion
It is estimated that the company's net return profit for 2017-2019 is 57 million yuan, 178 million yuan and 234 million yuan respectively, and based on diluted share capital, earnings per share are 0.17,0.43 and 0.57 yuan respectively, corresponding to PE of 93.9x, 37.0x and 28.0x, respectively, maintaining a "highly recommended" rating.
Risk hint
The high-speed rail brake pad project fell short of expectations; the promised performance of Taurus Grinding fell short of expectations.