The prefabricated heritage is rich, and Jianye has set sail again
The company was founded by China Minsheng Investment in October 2014 and successfully restructured and listed on the Hong Kong Stock Exchange in May 2015, making it the first restructured and listed company in the PC manufacturing industry. Zhuyou Group has applied for more than 1,600 patents, served 6 million square meters of national projects, and participated in the formulation of 8 national standards and 6 provincial standards. In July 2019, after being acquired by Jianye, the Zhuyou Group system was restructured and included in the eight major groups under Jianye, forming a closed loop with Jianye Real Estate and Jianye New Life. In July of this year, Hu Baosen increased his holdings at a premium of HK$0.31 per share. After the acquisition was completed, Hu Baosen held 72.27% of the company's shares, and the alignment of interests between the majority shareholders and the company further improved.
The time has come for the promotion of prefabricated policies. The PC component market is growing rapidly. As demand for environmental protection and reduced labor costs rises, governments at all levels have introduced a series of policies and regulations to promote the development of the prefabricated construction industry, and policies have continued to increase since this year, speeding up the implementation of prefabricated buildings. Support policies for prefabricated buildings have been intensively introduced in Henan in the past two years, and it is expected that prefabricated buildings will soon enter a period of rapid development. Since prefabricated concrete buildings are still the main form of prefabricated buildings in China, this has led to the rapid development of the PC component market.
National layout and technology have created barriers, and franchise factories have boosted profitability. The company implemented a national layout of production capacity at the beginning of its establishment. The nine directly-operated factories that have already been put into operation have basically passed a period of rising production capacity, with a total design capacity of 640,000 square meters, laying the foundation for the rapid release of subsequent production capacity. As new equipment and technology were implemented into production lines, technological leadership was gradually transformed into practical barriers. Production line arrangements such as dual-cycle maintenance kilns were adopted, so that cost reduction and cost control were beginning to bear fruit. The development logic of franchise factories is clear. It is expected to be in line with the pace of expansion of directly-managed factories, which will significantly increase profitability.
Construction industry took the lead, and production capacity continued to expand under the guarantee of excessive orders
After the acquisition of the company Jianye, it got rid of the negative impact of most of the original controlling shareholders, and the business got back on track.
With the support of Jianye, on the one hand, the company made every effort to expand the production capacity layout in Henan Province, and on the other hand, collaborated with Zhongyuan Construction Industry to explore the “industry+real estate” cooperation model outside of Henan Province. According to estimates, the theoretical demand for PC components for Jianye Real Estate may exceed 3 billion yuan in the future, but due to related transaction restrictions, it is expected that as the company's production capacity and Jianye real estate demand increase, the upper limit of related transactions will rise steadily year by year, driving a steady increase in the company's orders. On the basis of completing the initial layout of production capacity across the country, the three major external environmental changes in terms of capital, policy, and orders will jointly drive the Zhuyou PC factory to achieve rapid release of production capacity within the next few years.
The final puzzle of EMPC was completed, and the business injected a lot of room for imagination
After the company was incorporated into the Jianye Group system, decoration and garden companies were injected into the group, and in the future, listed companies will incorporate construction, gardening and other businesses to complete EMPC's final puzzle. Prefabricated buildings are very different from traditional systems in terms of design and site construction. Through the EMPC model, the company can increase the efficiency of PC component manufacturing during the design stage while optimizing construction efficiency at the site. The company plans to inject business in the form of a registered subsidiary, mainly because it is restricted by the “anti-takeover” regulations of the Hong Kong Stock Exchange. After the registration of subsidiaries begins in the second half of this year, it is expected to usher in a small wave of business growth. After that, until the end of the testing period of the Hong Kong Stock Exchange in 2022, the new injection business will grow at the same time as the PC component business.
Investment advice
The company's deep technology accumulation and initial formation of a national production capacity layout will fully benefit from the rapid development of the PC market. After the company was acquired by Jianye, orders from Jianye Real Estate are expected to grow steadily, and it is planned to include construction and decoration businesses into the company to further expand the revenue growth rate. As capacity utilization increases, scale effects become prominent, and net profit is expected to grow at an accelerated pace. In summary, the company's performance is expected to continue to grow rapidly. The company's revenue for the year 2020-2022 is estimated to be HK$10.4, 16.2 and HK$2.42 billion respectively, up 49.3%, 56.1%, and 49.3% year-on-year net profit of HK$120, 220 and 330 million respectively, up 7.2%, 87.5%, and 50.1% year-on-year. EPS is 0.011, 0.020 and 0.030 HK$0.030 per share, corresponding PE is 31.16, 16.62 and 11.07 times, respectively. In summary, according to the Comparable Companies Act, we gave the company 26 times the target PE for 2021, corresponding to the target price of HK$0.52. First coverage, given a “buy” rating, target price of HK$0.52.
Risk warning: The epidemic recurred in the second half of the year; raw material prices fluctuated greatly; competition in Henan increased