Report summary:
The transformation has begun the path of a second take-off, and the majority shareholder OCT fully supports
The company is an established black electronics giant. The growth of the color TV business was weak due to weak industry demand, and the low shareholding ratio of majority shareholders also became an important risk factor affecting the stability of the company's management. Since 2018, there has been a major shift in the company's fundamentals. On the one hand, OCT, the majority shareholder, plans to fully subscribe for a fixed increase of 3 billion dollars to consolidate control and use the group's efforts to revitalize Kangjia. On the other hand, the company has formulated the development direction of “technology+industry+park”, clarifying the core position of a platform-based company driven by scientific and technological innovation. During the year, environmental protection, new materials, white electricity and other businesses have blossomed, and several industrial park projects have been implemented at the same time. In the future, the company will open up space in the industrial sector through park development, strengthen R&D and brand investment, and make every effort to build technological competitiveness and social influence, thus achieving Kangjia's second take-off.
Environmental protection: Deeply deploy resource recycling and water treatment, and the industrial park model achieves a win-win situation for all
In 2018, the company laid out resource recycling and water treatment business through the establishment of a joint venture, Kangjia Huanjia and the acquisition of 51% of Yikang Technology's shares. The environmental protection sector will also become an important driving force for the company's profit growth in the next two years. The current output value of the resource recycling market is around 80 billion dollars, and the industry's growth rate is expected to remain 15%. The scale advantage that existed in the industry until now is difficult to reflect and the market share of leading companies is low. However, Kangjia Huanjia has both central enterprise credit and industry operation experience. In the future, through renewable resource industrial park construction, Kangjia Huanjia will attract local enterprises to gather, enhance scale effects, and start industry integration to form a win-win situation for the government, Kangjia Huanjia, and enterprises, and ultimately increase company profits through investment income and operating profit.
Mixed reform enhances operational vitality and will promote the spin-off and listing of subsidiaries
In terms of management system, the company has improved operational efficiency by starting global competition for executives, improving incentive mechanisms, and comprehensively promoting mixed reforms. In terms of capital operation, Yi Square, a company owned by the company, has been included in the “Double Hundred Action” of state-owned enterprise reform
List, the mixed reform process continues to accelerate. At the same time, under the strategy of building a holding platform, the company plans to push its subsidiaries that have implemented mixed reforms to go public independently in the Science and Technology Innovation Edition or overseas, which will subsequently benefit from the Securities Regulatory Commission's new spin-off and listing policy.
Investment advice
We expect the solid waste and park business to be the company's main performance increase in 2019. Assuming that the additional items are implemented during the year, we expect the 2019 to 2021 EPS to be 0.19/0.28/0.39, corresponding to the current stock price PE23/16/11x. The company's current PS is only 0.2x, which is below the 10% quartile in the past 10 years. After starting the second transformation, future performance growth is worth looking forward to and maintaining the “recommended” rating.
Risk warning
1. Color TV hardware business lost money; 2. The mixed reform process fell short of expectations; 3. Industrial park construction fell short of expectations.