Incident: The company released a performance forecast for the first quarter. It is expected to achieve net profit of 31-35 million yuan, an increase of 80.51%-103.81% over the previous year.
Peel off Taiyuan corundum and go to battle lightly. The sharp increase in the company's profit in the first quarter was mainly due to the large loss amount of Taiyuan Corundum Logistics Engineering Co., Ltd., the company's former wholly-owned subsidiary, in the same period last year. 2018H1 Taiyuan Corundum lost more than 26 million yuan, equivalent to a quarterly corresponding loss of more than 13 million. After the company transferred shares during the reporting period, it was no longer included in the scope of the company's consolidated statement, reducing the impact on the company's net profit for the reporting period.
Focus on motors and magnetic materials. Currently, the company's main business is motors and magnetic materials. The main subsidiaries are Lianyi Electric, which operates the motor business, and Ganzhou Dongji and Yingluohua Magnetic, which handle magnetic materials. Lianyi Electric currently produces more than 400 types of products with thousands of specifications, serving more than a dozen downstream segments. 70% of the company's customers are leading companies in the industry, including Apple, Samsung, etc. At the same time, the company has successfully entered the German maglev train supply chain. In terms of development direction, on the basis of maintaining steady growth in the motor business, Lianyi Electric will expand into segments with good market prospects and a high market share of the company, such as new energy vehicles, wheelchairs, scooters, and robots. In terms of magnetic materials, Ganzhou Tongcheng's previous operations were poor, which dragged down the company's performance, mainly because Ganzhou Tongcheng was founded during the boom in the rare earth industry, and the cost of raw materials and machinery was high. Affected by the decline in industry sentiment, the introduction of relevant policies by the Ganzhou government, and the company's inefficient operation and management, Ganzhou Tongcheng stopped production. Currently, the company has calculated losses on all of them, and will not be affected by it in the future.
Profit forecasts and ratings. After divesting Taiyuan Corundum, the company will focus on the two main businesses of motors and magnetic materials, and increase investment in segmented fields. We gave the company an “increase in holdings” rating. The company's 2018-2021 EPS is expected to be 0.18 yuan, 0.20 yuan, and 0.22 yuan respectively. The PE corresponding to the current stock price is 29.7 times, 27.2 times, and 24.8 times, respectively.
Risk warning: the risk of large fluctuations in rare earth prices, the risk that the company's production and sales situation falls short of expectations, and the risk of a decline in downstream prosperity.