Investment logic
Heavy machinery leader, performance certainty hit bottom rebound: the company is the leader of heavy machinery in China. 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 operation improved significantly, and its revenue rebounded to an all-time high in the first three quarters of 2017, and its profits reversed. The company has issued a 2017 performance forecast, which is expected to achieve a net profit of 84 million yuan and a new order of 12.25 billion yuan, a year-on-year + 50.9%. The performance reversal trend has been established.
The supporting R & D core of nuclear power equipment will fully benefit the development of domestic third-generation reactors: according to the development plan of the nuclear power industry, it is estimated that a total of 8-10 reactors will need to be started and connected to the grid each year in the next three years, with an average annual investment of more than 100 billion yuan, an all-time high. The first reactors of the third generation of nuclear reactors that restrict the development of nuclear power in China have all made breakthroughs in the past three months, and new nuclear power projects suspended since 2016 are expected to be re-approved. At present, the company is the only enterprise in China that can not only produce nuclear reactor pressure vessels, but also have a full set of manufacturing capacity of nuclear forgings, as well as supporting all the first pressure vessels of three main models of nuclear power in China. It is expected to benefit from the opening of the fourth wave of nuclear power construction in China to the greatest extent.
The demand for hydropower and thermal power resonates, which is good for the rebound of the company's large-scale casting and forging business: the company's large-scale casting and forging products are mainly thermal power turbogenerator, hydropower turbine stator and rotor, as well as blades, runners and other related accessories. Thermal power plants in China are ushering in a peak of rotor maintenance and replacement, while flexible transformation also brings new opportunities for the industry. With the construction of two major hydropower stations in Baihetan and Wudong Germany, hydropower accessories have opened a peak of equipment procurement for 2-3 years. As an industry leader with outstanding production capacity and rich supporting experience of large castings and forgings, the company is expected to achieve the bottom rebound of plate business with the double resonance of hydropower and thermal power demand.
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 million yuan, 99.14 percent, 12.20 billion yuan, a year-on-year growth rate of 151.7 percent, 22.9 percent, 21.2 percent, and a net profit of 0.84 percent, 447,036 million yuan, compared with a turnaround / + 435.5 percent, and diluted EPS0.012/0.065/0.151 yuan. We maintain the company's "overweight" rating, with a target price of 4.50 yuan for 6-12 months, corresponding to 69X18PE and 30X19PE.
Risk.
The improvement of demand has led to intensified competition in the industry, low expectations of the grid-connected process of the third-generation nuclear reactors, and uncertain safety risks such as nuclear leakage.