Main points of investment
The supply and demand of Kumgang line is prosperous, and the performance growth is higher than expected. The company announced its annual report for 2017, with operating income of 284 million yuan, an increase of 82.16% over the same period last year, and a net profit of 86 million yuan, an increase of 127.14% over the same period last year. The corresponding basic EPS was 1.81 yuan, and the performance exceeded expectations. Under the background of the continuous maturity of "diamond line + black silicon" technology, the permeability of electroplated diamond wire cutting in the field of photovoltaic polysilicon chips has increased rapidly, and the demand for diamond line has ushered in explosive growth. The company accounts for more than 85% of the revenue of the Kumgang line, actively seizing the market opportunity and rapidly promoting the construction and commissioning of the new production capacity of the Kumgang line. It is estimated that the production capacity of the Kumgang line will be about 1.47 million km by the end of 2017, an increase of 220% over the same period last year, and the production line continues to be in full production or even overproduction.
The scale effect appears and the profitability increases. The gross profit margin / net profit margin of the company in 2017 was 51.10% / 30.34% respectively, an increase of 2.23pcts/6.01pcts over the same period last year. Under the background that the diamond line is in short supply, the price remains strong, and the profit margin of the company's diamond line business has improved. During the period of the company, the expense rate was 14.21%, a decrease of 4.99pcts compared with the same period last year, in which the sales / management / financial expense rate was 3.43%, 11.18%, 0.40%, respectively, and decreased 1.12pcts/3.08pcts/0.79pct compared with the same period last year. With the increase of scale effect, the company's expenses decreased significantly, driving the net interest rate to increase significantly. We expect that with the continuous expansion of the company's business scale, the scale effect is expected to further appear, and profitability is expected to continue to improve. The net cash flow of the company's operating activities was 64 million yuan, an increase of 710.35% over the same period last year.
Fund-raising projects continue to move forward, with considerable profits from new production capacity. The company's IPO investment project is the "annual production capacity of 1 million km diamond wire saw construction project", the main product is 0.06-0.45mm electroplated diamond line, and mainly ultra-fine line, with strong market competitiveness. On the basis of actively promoting the commissioning of the project, the company has achieved a substantial increase in production capacity by increasing the speed of the production line, making full use of the existing plant, starting leasing plant expansion and so on. We estimate that the production capacity in 2018 is expected to reach 3 million km/ years, the production and marketing scale is rapidly expanding, and the net profit is expected to reach more than 150 million yuan.
Increase investment in R & D and enhance core competitiveness. The company pays attention to technological innovation and product development, and continues to increase investment in R & D. in 2017, R & D expenditure reached 14.7133 million yuan, an increase of 54.62% over the same period last year, accounting for 5.18% of revenue, and 11 / 42 new / cumulative authorized patents were added. Continuous technological upgrading not only improves the company's production efficiency, but also greatly improves the product quality and the rate of good products. The development of key new products such as grinding wheel, slicing knife and CMP-DISK has been steadily advanced, and some products have made phased breakthroughs. It is expected that in the future, the company will also increase the development of precision diamond tools for integrated circuits to form a development pattern of two-wheel drive of diamond wire saws and diamond grinding wheels.
Risk factors: photovoltaic industry growth is not as expected, the company's production capacity is not as expected, market competition is intensified, and so on.
Profit forecast and valuation: we expect the company's net profit from 2018 to 2020 to be 211 million yuan / 264 million yuan / 305 million yuan respectively (the original 19-year forecast for 2018 is 124 million yuan / 145 million yuan, and the increase in performance is due to the higher-than-expected progress of the release of new capacity). The EPS is 4.07 and 5.09 (the original forecast is 2.392.79), and the corresponding PE is 20-16-14. Give the company 25 times PE in 2018, corresponding to the target price of 101.7 yuan, and maintain a "buy" rating.