Shanghai Electric became the controlling shareholder of the company, and the company entered a new stage
Shanghai Electric became the controlling shareholder of the company in December 2018, accounting for 15.00% of the company's total share capital. It obtained voting rights for the company's 131,290,074 shares through a voting power delegation, accounting for 14.87% of the company's total share capital. In total, it obtained voting rights for 29.87% of the company's shares. The Shanghai State-owned Assets Supervision and Administration Commission, the actual controller of Shanghai Electric, has become the actual controller of Tianwo Technology, marking a new stage for the company.
China Machinery Power's performance commitment underpins performance
Zhongji Electric Power, a subsidiary of Tianwo Technology, has been deeply involved in the EPC engineering field for many years. In thermal power engineering, new energy projects, power transmission and transformation projects, it has outstanding overseas engineering capabilities. According to the 2018 ranking of general contracting turnover published by the China Survey and Design Association, China Machinery Power ranked 9th in contract completion among more than 160 companies in the industry. In terms of overseas engineering EPC, the company achieved a turnover of 1,979 billion yuan in 2018, ranking 14th in the industry, leading the way. At the time of the previous restructuring, the 2018 and 2019 mid-term engine power performance promises were no less than 415 million yuan and 456 million yuan respectively, which will underpin the company's performance.
There is a synergistic effect in the power engineering business, and state-owned holdings are expected to reduce financing costs
The controlling shareholder, Shanghai Electric, is one of the largest comprehensive equipment manufacturers in China. Shanghai Electric's power equipment manufacturing business will be deeply tied to China Electromechanical's energy engineering service business, and the company's energy engineering business is expected to expand. The development cycle of power engineering EPCs and new energy EPCs is long, and the amounts involved are usually large. Some projects even require the company to advance capital. Previously, as a private enterprise, the company had no advantage in financing costs, and profits were limited by financial expenses. After Shanghai Electric became the controlling shareholder, it could help the company reduce financing costs and financial expenses. The company previously signed separate loan contracts with Shanghai Electric. The loan amounts were 1,300 million and 700 million yuan respectively. The corresponding loan interest rate was only 5.85%.
Lay out photothermal power generation and cultivate new growth points
The company laid out the Yumen Zhengjiashawo Molten Salt Solar Thermal Project. The power generated by the project after being connected to the grid is guaranteed to be purchased by the power grid, which will contribute stable profits and cash flow every year. The implementation of this project will help the company seize opportunities in the field of photothermal power generation, expand the company's new energy EPC service fields, strengthen its leading position in engineering general contracting, and become a new performance growth point.
Excellent high-end equipment manufacturing capability
The subsidiary, Zhang Huaji, is the company's key enterprise engaged in high-end equipment manufacturing. It is a first-line supplier to China's non-standard pressure vessel industry. Its product quality is well known in the industry. It is one of the few domestic professional manufacturers with core technology, can undertake major national projects, and manufacture key equipment. With the recovery of the equipment industry, Zhang Huaji's profitability is expected to recover.
Investment advice: Considering the reduction in the company's financing costs and the increase in the industry position after Shanghai Electric Holdings, the company was covered for the first time and given a “increase in holdings” rating. The target price is 7.02 yuan. The estimated net profit from 2019 to 2020 is 348 million yuan and 421 million yuan respectively. The corresponding PE price is 15 times and 13 times, respectively.
Risk warning: The power and energy service engineering business falls short of expectations, and the progress of photothermal projects falls short of expectations
