Based on the dairy sector, it evolved into an intelligent packaging equipment solution provider. Central Asia Co., Ltd. has a complete product lineage. It already has a full range of liquid packaging equipment products from the front, middle and rear markets, and has the capacity to supply the entire line. The company entered the dairy packaging market in 1997. As of 2015, its market share in the dairy packaging equipment field had ranked first among domestic peers for three consecutive years, with revenue from the dairy industry accounting for more than 85%. It has established cooperative relationships with the top 30 domestic dairy companies and international dairy companies. Currently, the company is actively expanding markets other than the dairy sector, such as beverages, edible oils and fats, condiments, healthcare, cosmetics, etc., and continues to optimize its layout in high-end products. High-end liquid packaging machinery technology is difficult, the degree of customization is high, and profitability is strong. Before 2018, the company's gross margin basically remained above 40%. In 2019, due to product restructuring, gross profit margin and net interest rate declined.
Innovation and upgrading in the milk drink industry has led to the release of demand for liquid packaging equipment renewal, and the aseptic equipment of Central Asia Co., Ltd. has ushered in a harvest period.
The trend of high quality, niche, and differentiation in the dairy beverage industry is driving product innovation and iteration to accelerate, the life cycle of packaging bottle types is shortened, driving liquid food packaging machinery to technological upgrading to sterilization, flexibility, and integration. The frequency of equipment upgrades is expected to accelerate. Looking ahead, the two major trends of continuous expansion of the milk drink market and structural upgrading of milk product consumption are expected to stimulate downstream dairy beverage companies' willingness to invest in iterating on existing production lines, and demand for high-end liquid packaging equipment is expected to be released.
Imported equipment occupies the high-end market, and commercialization of aseptic equipment in Central Asia opens up alternative space for domestic production. The company began developing first-generation aseptic filling and sealing equipment for plastic bags in 2002. At present, the most technical and difficult aseptic bottling technology has made a breakthrough. In 2019, many customers such as Yili, Xiang Piaopiao, Jin Mailang, Yangyuan, Zuming Foods, and Dexin Foods ordered aseptic bottle and cup filling production lines from the company. The company's sterile bottling equipment production line received the second and third orders from Li Ziyuan. We believe that the company's aseptic filling technology already has a high level of maturity and market competitiveness, and is expected to take the lead in domestic substitution in the process of upgrading production lines of downstream manufacturers, leading to large-scale release.
Fundraising projects increase production capacity and R&D capacity, and business development is expected to reach a new level. In 2016, the company raised funds through an IPO to increase the production capacity of 204 new intelligent production lines, 13 DABL series fully automatic aseptic plastic bottle filling and capping units, and began construction of a R&D technology center project. The second phase of the fundraising project is expected to be put into use this year. At that time, the company's production capacity bottlenecks will be alleviated, and more profitable high-end products are expected to begin to be released. The decline in profitability caused by product restructuring in the early stages is expected to be repaired, a recovery will be achieved, and business development is expected to reach a new level.
Entering the medical field is expected to create new performance growth points. With the gradual improvement of industry hygiene standards, large infusion companies are gradually adjusting infusion packaging structures and product structures, driving a new round of demand for replacement of large infusion equipment. The company has now cooperated with well-known pharmaceutical companies such as Hengrui, Shuanghe, and Colon. In the future, medical infusion packaging equipment is expected to become another growth point for the company's performance.
Profit forecasting, valuation and investment ratings: Considering the pace of the company's new product launch, we raised the 2021-2022 profit forecast. We expect the company to achieve net profit of 1.47, 2.77 and 384 million yuan in 2020-2022 (original forecast values of 1.47, 2.47 and 340 million yuan), corresponding to EPS 0.54, 1.03 and 1.42 yuan (original forecast values of 0.54, 0.91 and 1.26 yuan), corresponding to PE 35, 19 and 14 times. Considering the iterative trend of downstream packaging production line updates and the company's anticipated release of new high-end products and positive results in expansion in fields other than dairy products, we expect the company to maintain relatively rapid growth in the next three years, giving a target market value of 8.317 billion yuan in 2021, raising the target price to 30.80 yuan, corresponding to PE 30 times in 2021, and raising the “strong push” rating.
Risk warning: The promotion of the company's new products fell short of expectations; the company's expansion into new fields fell short of expectations.
