Summary
Fuchun convertible bonds will be listed on Monday, July 25, with a size of 570 million yuan. We think that according to the current market conditions, its listing position may be around 120 yuan.
Positive stock analysis
The company is a leading domestic color yarn production enterprise, focusing on yarn dyeing, rapid expansion in recent two years, superimposed commodity cotton yarn price rise, volume and price increase to promote the company's performance. The company currently has a yarn production capacity of 72,000 tons per year, of which about 90% of the customers are domestic hosiery factories, and the company's products account for about 50% of the domestic cotton hosiery industry. The company's production capacity expanded at a rate of about 18% from 19 to 21, with capacity utilization and production and marketing rates of more than 95%. Since 21 years, the company has accelerated the pace of production expansion. In the past three years, the company's revenue / return net profit CAGR was 24.75% and 59.88%, which mainly benefited from the company's capacity expansion and the increase in downstream cotton yarn prices, and the profit and revenue situation continued to improve. We think the highlights of the company's fundamentals are:
1. The company has significant advantages in environmental protection and cost, or benefits from the elimination of backward production capacity in the same industry: the company's independent intellectual property rights of the whole biological sewage treatment process has a high degree of automation and low operating cost. Through continuous technical transformation, the company produces an average fresh water intake of 64 tons of water per ton of yarn, which is much lower than the 90 tons of water per ton of yarn regulated by the industry. at the same time, the cost of electricity, dyeing, sewage treatment and steam is reduced synchronously, and the unit production cost is lower than that of peers. We believe that with the stricter environmental protection policy and the company's capacity expansion, the company may benefit from the increase of industry concentration and expand market share; 2. The company has developed a standard color card covering more than 600 colors, which carries out standardized production according to the color card. Customers place orders according to color cards and implement warehouse production and sales mode, which effectively reduces production costs, improves delivery speed, and shortens customers' purchasing cycle. 3. The company speeds up the pace of production expansion and actively develops new customers and markets: the current production capacity of the company is 72,000 tons / year, with a total of 60,000 tons / year in three workshops of Jingzhou production base and 30,000 tons / year in fiber dyeing projects. as well as the intelligent spinning project that supplies the company's raw materials, the company expects that all projects under construction will be completed and put into production by the end of 23. In view of the fact that the company's main customer is the domestic hosiery factory, the market is limited and it is difficult to digest the release of production capacity, the company is actively developing the market of yarn-dyed fabrics, towels and circular machines, and the follow-up need to pay attention to the market consumption of the company's new production capacity.
The issue of convertible bonds to raise funds is mainly used for intelligent precision spinning project (phase I) construction. Fuchun dyeing and weaving is expected to achieve an annual production capacity of 240,000 compact yarns after the completion of the project. Previously, the company's important raw material yarns are purchased, which aims to extend to the upper reaches of the industrial chain through this project, which we believe will help the company to make use of the advantage of scale to reduce raw material costs and ensure yarn supply.
The current valuation of positive stocks is not high, the market capitalization is small, and the flexibility is general. The company's main stock PE (TTM) is 11.37x, which is in the average position of the industry, but at a low level in its own history. At present, the total market capitalization of positive shares is 2.501 billion yuan, which is lower than 90% of the enterprises that issue convertible bonds in the current market, of which free circulation only accounts for 33.33%. All the remaining restricted shares will be lifted in May 24. The ownership structure of the company is centralized, and the real controller, he, his wife and his daughter, together control 61.64% of the shares in the company. Recently, institutional attention has increased, with the fund holding 18.54% in the first quarter of 22. The daily volatility of nearly 180 stocks is 45.89%, which is generally flexible. The company's stock has fluctuated greatly in the past three months and has shown an overall downward trend since the beginning of this year.
Terms and pricing
The scale of convertible bonds is small and the protection of debt bottom is weak. The current convertible bond size is 570 million yuan, the initial conversion share price is 23.19 yuan, and the latest parity is about 86.42 yuan. The AA-, of the convertible bond rating has a maturity of 6 years, with a coupon of 0.3%, 0.5%, 1%, 1.5%, 1.8% and 2.5% respectively, the redemption price at maturity is 108.3 yuan, the YTM corresponding to the face value is 2.16%, the debt bottom is about 78.85 yuan, the protection of the debt bottom is weak, and other provisions remain in the mainstream form.
Pricing level, the company's fundamentals are general, in recent years, continue to increase the field of yarn dyeing, benefiting from capacity expansion superimposed downstream cotton yarn price rise, the company's performance has grown rapidly in the past 21 years. The pace of production expansion of the company has been accelerated in the past 22 years, but the domestic sock market is limited, so we need to pay attention to the company's new market development in the future. The valuation of positive shares is medium, the flexibility is general, and there has been a downward trend since the beginning of this year. The scale of convertible bonds is small and the terms are conventional. We think its listing position may be around 120 yuan.
Risk
The price of raw materials fluctuates; the new production capacity cannot be digested in time.