Kangxin New Materials: Container bottom panel leader, technology+cost+manufacturing advantages, expansion and strengthening of endogenous extension.
The company is mainly engaged in R&D, production and sales of container bottom panels, as well as afforestation and cultivation of high-quality seedlings. The main products include container bottom panels, environmentally friendly boards and various forest products. The company attaches importance to technological research and development, and has achieved three major technological breakthroughs in sub-small fuelwood modification, quaternary resin adhesives, and COSB production lines. Combined with rich forest resources, low raw material costs and high production efficiency, are obvious in scale and cost advantages. The company completed a backdoor listing and entered the capital market in May 2015, raised capital to expand production capacity while extending mergers and acquisitions of interbank companies, expanding and strengthening to become a leader in the industry, and its performance grew rapidly. The compound growth rates of revenue and net profit in 2012-2016 were 23.75% and 32.15% respectively; 2017 revenue was 1,888 million yuan, and Guimu's net profit was 466 million yuan, up 21.47% and 39.05% respectively over the previous year.
The demand for container soleplates is recovering, and leading companies are expected to benefit significantly. As an essential component for containers, demand is synchronized with containers. Benefiting from the recovery of shipping, the boom in the container industry is rapidly picking up, driving up demand in the bottom plate industry, and industry leaders are expected to clearly benefit. China's container bottom plate industry is highly concentrated, while traditional small enterprises are forced to increase costs due to limited forest resources, and their living space will be squeezed due to environmental pressure. Kangxin's new materials are endogenous and their market share exceeds 40%. With R&D advantages, forest resources, and stable customer relationships, etc., the advantages are expected to significantly benefit from the recovery of the economy.
Expand the timber frame housing market and create new growth points. Hubei Tianxin, a wood-framed housing subsidiary established by the company, will purchase fully automated production lines for German floor slabs and wall panels, combine advanced domestic production lines for glued beams and columns to manufacture wooden structural walls and wall cladding panels, etc., with a planned production capacity of more than 120,000 square meters per year. Taking advantage of the performance and cost advantages of existing boards, Hubei Tianxin is expected to achieve rapid expansion in the wood structure products market.
Investment suggestions: Technological innovation and manufacturing R&D have created the company's product cost advantage. It is strengthened and expanded through capacity expansion and mergers and acquisitions integration to become a leading enterprise in the container bottom plate industry; it plans to acquire a number of companies in the same industry in cash. The market share will rise to more than 40%, and the voice of the industry will increase markedly, which is expected to benefit from a recovery in container manufacturing sentiment. At the same time, it leverages competitive advantage strategies to expand domestic and overseas timber-framed housing markets and create new performance growth points. We expect the company's net profit to be 567 million, 683 million and 794 million yuan respectively in 2018-2020. EPS will be 0.55 yuan, 0.66 yuan, and 0.77 yuan respectively. The corresponding PE will be 11.6, 9.6, and 8.3 times, covering the “increase in holdings” rating for the first time.
Risk warning: risk of macroeconomic fluctuations; risk that major asset acquisition transactions may be suspended, suspended or terminated; risk of uncertainty in tax and forestry policies; risk of cash purchases and financing; risk of natural disasters; risk of equity pledges.
