New infrastructure UHV + civil-military integration of aviation parts manufacturing, dual main industries drive long-term growth. Henan Tongda Cable Co., Ltd., specializing in wire and cable production and research and development has a history of more than 30 years. The company was successfully listed on the Shenzhen Stock Exchange on March 3, 2011. Is a professional production of ground conductors, power cables, fireproof cable manufacturers. In order to pursue greater development, the company pays close attention to the east wind of vigorously developing the policy of "military-civilian integration" and actively transforms to the direction of military industry. In 2016, the company successfully held hands with Chengdu Hangfei Aviation Machinery and equipment Manufacturing Co., Ltd., which provides precision parts processing for multi-type fighter planes, large transport aircraft, multi-type trainers, drones, missiles and so on. it has taken a solid step towards the realization of the company's military-civilian integration strategy. Chengdu Airlines is mainly engaged in high-end precision manufacturing services for aircraft structural parts, including CNC workpieces such as body titanium alloy, aluminum alloy frames, beams, ribs, joints, sheet metal forming moulds and composite molding molds. the products cover a variety of major military aircraft as well as Comac C919 and other civil aircraft.
The acquisition of Chengdu Airlines has added two new fund-raising projects to provide new momentum for the company's long-term development. In 2016, the company completed the acquisition of Chengdu Airlines, the company has been engaged in the manufacture of aviation parts for a long time, has a strong competitiveness in this field, and is in the first echelon of domestic aviation parts manufacturing industry with Alleda. The company added two major aviation military investment projects (aviation parts manufacturing base construction project + Xindu aviation structure R & D and production project), which is expected to have a significant pulling effect on the company's revenue in the next 3-5 years.
New infrastructure UHV and rail transit industry policy dividends are gradually realized. (1) by combing the domestic UHV projects since 2009, we can find that the company has continued to participate in UHV related projects in the past years, and there are still a large number of UHV projects approved or started construction in the next three years, which is expected to have a sustained and substantial pulling effect on the company's wire and cable related orders. (2) the total mileage of China's 14 national urban agglomeration railways, including trunk railways, intercity railways and urban railways (urban express lines) is 22478.78 km, and the mileage under construction is 15125.19 km. The mileage of construction is expected to be as high as 11628.37 km from 2020 to 2021.
Focus on the main business and gradually withdraw from non-related industries. The company has recently transferred 35% of its stake in Tongda New Materials to Henan Tenghang Aluminum, realizing a loss-making business. In the later stage, the company plans to dispose of the microfinance business of its subsidiaries and further focus on the main business.
Profit forecast, valuation and investment rating: we expect the company's operating income from 2020 to 2022 to be 2.067 billion yuan, 2.583 billion yuan and 3.1 billion yuan respectively, and the return net profit to be 164 million yuan, 245 million yuan and 307 million yuan respectively, corresponding to 0.37 yuan, 0.55 yuan and 0.69 yuan respectively for EPS. Based on the closing price on August 10, 2020, the corresponding PE is 31.63x, 21.19x and 16.98x, respectively. Comparable companies were valued at 37.46x, 28.78x and 28.51x from 2020 to 2022, respectively. Our valuation forecast for Tongda shares is significantly lower than the industry average. We believe that with the domestic UHV construction, rail transit construction and military goals put forward in the next 3-5 years, the company's wire and cable business and military-related business will be significantly promoted, and the company's medium-and long-term investment value is expected to gradually appear. Give the target price range of 15.7-15.9 yuan for the next 12 months, giving a "recommended" rating for the first time.
Risk tips: the amount of funds raised by the fund-raising project is not as expected, the bid-winning order volume of the national network UHV project is not as expected, the total bid-winning order volume of China Railway is not as expected, and the prices of aluminum, copper and other raw materials fluctuate sharply in the short term.
