Core views
The special container and quick-freezing equipment business combines the two logics of procyclical recovery and growth. Looking at the trend of cyclical recovery in the tank market in the short term, the trend of cyclical recovery is determined, and it is in the early stages of procyclical recovery, and the company's market share is expected to continue to increase. The vast new demand in emerging markets has opened up broad growth space for the industry. The tank market has huge market space in the medium to long term, and growth is obvious. The company's tank business combines the two logics of procyclical recovery and growth. Performance is highly certain, and flexibility can be expected.
Domestic frozen food will become more and more commonplace, and the penetration rate in food consumption will continue to increase. Quick-freezing equipment directly benefits from domestic consumption upgrading trends. In the long run, the market space is huge; in the short term, the market size rises steadily, and growth is obvious.
The two business moats are high. The competitive pattern of the industry, operating characteristics, and the company's product positioning and structure determine that the company can continue to enjoy higher gross profit margins
The competitive pattern of the company's two business markets is excellent. They are both in the first tier of the country. Their competitive advantage in the domestic market is clear, and the barriers to business entry and the company's moat are relatively high. However, the diversification and continuous rapid development of the requirements of the two businesses has made innovation-driven and customized production the basic competitive model for the business. We believe that the company's product structure is continuously optimized, the capacity utilization rate can also be maintained at a high level, and that it should enjoy a higher gross profit margin and be more sustainable.
For the first time, the “buy” rating was covered. The company's growth is strong, and the margin of safety is high. We believe that downstream demand for the company's two businesses will continue to improve. Supported by the company's IPO fundraising capacity gradually reaching production over the next two years, the company will definitely grow at a high level in the past 3 years. Moreover, there is a big difference in expectations between the company's fundamentals and market expectations. The upward elasticity of performance is high, and the margin of safety in market capitalization is large. For the first time, coverage gave a “buy” rating.
We expect that in 2017-2019, the company can achieve operating income of 965, 1323 and 1,762 million yuan, with a compound increase of 38% over the next three years based on 2016; net profit attributable to the parent company of 169, 2.37 and 308 million yuan, a compound increase of 35% over the next three years based on 2016, and a compound increase of 35% over the next 2 years based on 2017. The total share capital is 210 million shares, corresponding to EPS 0.82, 1.15 and 1.49 yuan.
The main points of the valuation are as follows: On March 09, 2018, the stock price was 2,220 yuan, corresponding to a market value of 4.667 billion yuan.
The 2017-2019 PE was about 27, 19, and 15 times, and the latest PB was 3.32 times; we think the company's reasonable market capitalization range is 44 (market average) billion to 9.5 billion (PEG) billion, which is currently at the bottom of the range. The company's market capitalization is below the lower limit of a reasonable range, reflecting conservative expectations. We believe there is a clear underestimation and a relatively large margin of safety.
Risk warning: The continuity of order recovery is lower than expected, the progress of fund-raising projects put into operation is lower than expected, market style suppresses company valuations, etc.