Matters:
Jubilee Technology (300221) issued two announcements on March 16, 2018, separately disclosing: 1) the “Proposal on Congolese Gold Construction's Crude Cobalt Hydroxide Smelting Project with an Annual Output of 3,000 Metals Tons” reviewed and approved by the 7th meeting of the fourth board of directors of the company; 2) Jubilee Congo Cobalt signed a mineral rights transfer contract with PYRAMIDE. Our comments on this are as follows:
Comments:
The integration of mineral rights combined with the preparation of smelting projects, and the upstream layout of lithium batteries was perfected. This time, the company signed a mineral rights transfer contract with PYRAMIDE and converted the mineral rights into PE rights. Since then, the company has achieved substantial progress in upstream mineral rights acquisition and mining, and mineral resources can already be explored, mined and constructed by the company. At the same time, the company invested in smelting and deep processing projects, while promoting the commercialization of mineral resources, it will extend the company's complete layout in the upstream lithium battery industry. The company expects that after the project reaches production, the average annual operating income will reach 111 million US dollars, the net present financial value after tax will reach 57.7602 million US dollars, and the payback period will be 4.3 years. We are optimistic that after successfully completing and perfecting the upstream layout this time, the company will continue to integrate resource advantages and deepen the layout of the lithium battery industry chain in Congo, a country with large cobalt resources.
The allocation of lithium battery resources is progressing smoothly, and the cultivation of new growth points is progressing steadily. New energy vehicles are listed as a national strategy and have always received great attention. With energy density requirements, demand for ternary materials (currently mainly nickel, cobalt, and lithium manganate) is about to explode. We expect that the company's lithium battery resource integration and mineral smelting projects will strongly promote the company's new energy strategy layout, greatly increase the company's profit level in the long term, and become one of the company's important growth points in the future.
The main business is growing rapidly, and there are many highlights of performance. 1) The company's main business, the modified plastics business, increased profits in 2017. As a first-class enterprise in the domestic modified plastics industry, the company has been deeply involved in this field for many years. We believe that with the expansion of production capacity, economies of scale, and cost control advantages brought about by long-term R&D investment and fine management, the company's main business profit will continue to grow rapidly; 2) Yinxi Optoelectronics, a subsidiary of the company that focuses on the LED sector, is growing rapidly against the backdrop of strong supply and demand in the domestic LED industry, and profit growth can be expected. 3) Sinko Electronics, a wholly-owned subsidiary of the company, is a highly competitive full-process solution provider in the field of CNC precision metal structural parts in China. It has achieved market leadership using the new composite materials it has developed, and has already supplied major manufacturers such as Huawei and Oppo. We are optimistic that this business will continue to maintain strong growth capacity in the context of the rapid development of the domestic electronics market.
Risk factors: 1. Competition in the modified plastics and metal CNC industry intensifies; 2. Investment and development of metal raw materials such as cobalt is uncertain; 3. Fluctuations in raw material prices.
Profit forecasts, valuations, and ratings. While maintaining the good development of its traditional business and the gradual launch of new orders from Societe Generale, the layout of its new energy industry chain is on the right track. We are optimistic that the company has a lot of room for performance growth. We maintain the company's 18/19 EPS forecast of 0.75/1.08 yuan respectively, maintaining the target price of 22.70 yuan, and maintaining the “buy” rating.