Incident: On March 19, 2018, the company announced the signing of a major contract. The wholly-owned subsidiary Dajin Heavy Industries and Yangzhou Xinhaifeng Shipbuilding Import & Export Co., Ltd. signed a 4,500 DWT tanker order contract with Khabarovsk Amurskayaneftebaza Co., Ltd., with a contract amount of 45.3538 million yuan. According to the progress of the project, it is expected to have a positive effect on the company's business performance from 2018 to 2019.
Otsu Heavy Industries was incorporated into the framework, improving the “design-to-construction” closed-loop industry chain company of shipbuilding equipment to acquire Otsu Heavy Industries in cash at the end of 2017, perfecting the “design to construction” closed-loop industry chain of ship equipment and reducing the “shipowner-shipowner-shipyard” intermediary transaction process, thus having significant advantages of fast delivery cycle and high cost performance ratio. The company is expected to receive ship export orders during China's Belt and Road promotion process. Obtaining a 4,500 DWT tanker order from Amurskaya Neftebaza in Khabarovsk is proof. In addition, Dotsu Heavy Industries also received a survey ship project from the Pakistan Navy, which is expected to benefit from the development dividends brought by China's military reinforcements and trade in the Belt and Road Initiative in the future.
According to performance promises, Otsu Heavy Industries achieved net profit from 2018 to 2022:70 million yuan, 93.3 million yuan, 11.56 million yuan, 12.104 million yuan, and 123.43 million yuan respectively.
2017 earnings report: Guimo's net profit was 181 million yuan, YoY +1.32% 2017 performance report: Otsu Heavy Industries merged and made retroactive adjustments to 2016 financial data. The company achieved revenue of 1,271 million yuan in 2017, a decrease of 21.57% over the previous year; Guimo's net profit was 181 million yuan, an increase of 1.32% over the previous year. The main reason for the decline in revenue was the decline in sales revenue from the marine EPC business and natural gas business, but the high-margin business increased, so the company's overall operations were not significantly affected. The shipbuilding EPC business has shrunk somewhat due to the slump in the civil shipbuilding and offshore industry, but the private shipbuilding industry will gradually pick up in 2018, and the EPC business is expected to pick up; the natural gas sales business is affected by the rise in natural gas prices, which has led to a decline in the volume of the natural gas distribution business.
Gold Shipping: Air and sea equipment is scarce, and its performance is expected to continue to grow as military reform is implemented. Golden Shipping's military industry has all four licenses, which is a scarce target for sea and air special equipment. According to performance promises, the net profit of Gold Shipping in 2017 was as low as 117 million yuan. Considering the following factors: 1) The impact of military reform on equipment bidding will gradually weaken in 2018, and Golden Shipping may see a compensatory increase in orders; 2) the drastic expansion of the Marines and the increase in equipment demand brought about by military trade; 3) Accelerate the finalization and assembly of various equipment products and the continuous development and mass production of new products. In the process of accelerating integration with listed companies, Jinhaiun is expected to continue to experience high performance growth in 2018.
The actual controller increases its holdings: Liu Nan, the company's actual controller and chairman, will increase the company's shares within 12 months after the company completes the 100% equity transaction of Dajin Heavy Industries, with a total amount of no less than 100 million yuan. The increase has not yet been completed.
Profit forecast: We expect Tianhai Defense to achieve net profit of 2.60 and 326 million yuan from 2018 to 2019, an increase of 43.6% and 25.4% over the previous year; EPS was 0.27 and 0.34 yuan; PE corresponding to the current stock price was 26X and 20X respectively, maintaining the purchase rating, with a target price of 8.95 yuan.
Risk warning: The shipbuilding market continues to be sluggish; the volume of air and sea equipment has fallen short of expectations.