The company's main business introduction and performance review. The company currently has three main businesses, namely, container handling equipment (traditional start-up business), stainless steel trade-related business and CNC CNC machine tools (the main business of Runxing Technology, a subsidiary acquired in 2017). Runxing Technology is a leading manufacturer in the domestic CNC industry. 2018H1, a subsidiary of Runxing Technology, has an operating income of 673 million yuan, a gross profit margin of 50.14% and a net profit of 230 million yuan, which constitutes the main source of profits of listed companies (2018H1, the company's return to the parent net profit of 252 million yuan).
The decline in the smartphone industry in 2018 has affected the company's new orders. Domestic smartphone industry shipments declined significantly in 2018. According to IDC,2018, annual smartphone shipments are expected to decline by 3%, of which the decline in China will reach 8.8%. The main downstream customers of the company's CNC machine tools are mobile phone body manufacturers (such as BYD Electronic, etc.). Downstream customers have experienced a decline in orders caused by weak shipments of smartphone terminals, which has affected their capital expenditure to a large extent. We expect that new orders for CNC machine tool equipment will also be affected.
5G investment is expected to become the next growth point of the CNC industry. 5G mobile phone has special requirements for signal transmission, and puts forward higher integration, more precision and more complex requirements for the internal structure of the model, which puts forward new requirements for smart phone parts and materials and their processing forms. In addition, with the opening of domestic 5G investment, the processing demand of a large number of metal parts used in infrastructure, such as base stations, is expected to break out gradually. As the leader of domestic CNC industry, the company has strong advantages in equipment research and development, industrialization and sales capacity, and is expected to benefit from the growth of the industry.
The company promotes the integration of stainless steel business. On November 30, 2018, the company announced that it intends to use Wuxi Huasangtong Electronic Commerce Co., Ltd., a secondary holding subsidiary, as the integration platform. The ownership structure of Wuxi Binhu District Huadong Rural Micro-loan Co., Ltd., which is 40% owned by Wuxi Huadong heavy Machinery Technology Group Co., Ltd., and Wuxi Huadong heavy Machinery Technology Group Co., Ltd., which is 40% owned by Wuxi Huadong heavy Machinery Technology Group Co., Ltd., is appropriately optimized and integrated. Through the above integration, the company's business model in the field of stainless steel trade business is further optimized, and it is expected to expand the business category and provide better services for enterprises in the upper and lower reaches of the stainless steel industry chain.
Profit forecast and valuation. In view of the significant decline in the prosperity of the smartphone industry, we have lowered the company's profit forecast. We estimate that the company's homing net profit from 2018 to 2020 will be 4.14x529max RMB 605m, corresponding to EPS 0.41 pm 0.52max 0.60 RMB. With reference to the comparable company valuation, we give the company a valuation of 15-18 times PE in 2018 (taking into account a certain valuation discount), with a reasonable value range of 6.15-7.38 yuan and a rating of "better than the market".
Risk hint. The long-term downturn of 3C industry has led to a decline in company orders, and the goodwill formed by mergers and acquisitions of Runxing technology has the possibility of impairment.