Investment suggestion

We downgrade Liyuan refined rating to neutral. The reasons are as follows:

1H18 results forecast a loss, which was significantly lower than expected. The company issued a revised announcement of 1H18 performance forecast, predicting a net profit loss of 0.75 billion yuan in the first half of the year, a decrease of 124 to 132 percent over the same period last year (the forecast profit before the revision was 310 million yuan). According to the revised forecast, the company's 2Q18 net profit is 180% to 250 million yuan, down 187% to 199% from the same period last year, and 271% to 295% from the previous month, much lower than expected.

Operational level: liquidity pressure affects revenue; financial expenses rise. According to the company's revised performance forecast, 1H18's operating income is expected to be about 900 million yuan, down 41% from 1.513 billion yuan in the same period last year. This is mainly due to the large amount of money invested in the Shenyang Liyuan project, which did not reach production and produced benefits, resulting in the company's lack of liquidity, affecting the procurement and supply of raw materials, and making the company's products not delivered in time. At the same time, the company predicts that the financial expenses of 1H18 will increase by ~ 150 million yuan compared with the same period last year, because Shenyang Liyuan project has invested a lot of money.

The pledge of major shareholders' shares brings uncertainty. According to the company announcement, the largest shareholder of the company and its actors together hold 22.26% of the total share capital of the company, of which the stock pledge repurchase business accounts for 21.96% of the total share capital of the company. As a result of the debt dispute, the company shares held by the largest shareholder and his co-actors are frozen on the judicial waiting list. In addition, a total of 20 bank accounts of the company and its wholly-owned subsidiary Shenyang Liyuan were frozen, with an application for a freeze of about 150 million yuan, and the balance of the frozen account was mainly 83.46 million yuan. At present, the pledge of shares has not had a direct impact on the production of the company, and the pledged shares can not be sold by competitive bidding under the judicial freeze, but if the relevant shares are dealt with judicially in the future, the actual control of the company may be changed. bring operational uncertainty.

What is the biggest difference between us and the market? Liquidity pressure has a direct and indirect impact on the company's operation, such as aluminum profile sales, gross margin, gross profit margin, cash flow and so on.

Potential catalyst: share pledge brings corporate control and operational uncertainty.

Profit forecast and valuation

For the reasons mentioned above, we reduce the company's earnings per share forecasts for 2018 and 2019 by 114% and 87% to-0.08 yuan and 0.10 yuan. At present, the company's share price corresponds to 1.4x 2018eP/B, downgrading the company to neutral and lowering its target price by 64% to 4.30 yuan (1.2x 2018eP/B), which is 17% lower than the current share price.

Risk

The progress of the project is lower than expected; the pledge of shares of major shareholders has an impact on the operation.