Synopsis
Xiangfeng Convertible Bonds was listed on October 26 (Thursday) with a scale of 800 million yuan. According to our new securities pricing model, we believe that under the current stock price of the company, its convertible market price should be around 126.18 yuan, with a premium rate of about 21.17%.
Underlying stock analysis
The issuer, Xiang Fenghua, is an advanced supplier of lithium battery anode materials in China. The company's shipments in '21 accounted for 3.8% of global anode materials, fully benefiting from the development of downstream new energy vehicles. Downstream customers are highly concentrated and bargaining power is strong. The main products are divided into two categories: natural graphite and artificial graphite. The products are used in lithium-ion battery fields including power (electric vehicles, electric bicycles, etc.), 3C consumer electronics, and industrial energy storage. In 2022, the company's anode materials ranked 7th in the domestic market share, and there is still a gap with leading global anode materials companies such as Betray and Shanshan Co., Ltd., but in terms of segmentation, the company is ahead in the field of natural graphite. In 2021, the company's natural graphite accounted for 17% of the domestic market, second only to leading company Betray.
Specifically, in the company's 22-year main business composition, graphite anode materials accounted for the highest proportion, reaching 99.29%, while the rest of the business accounted for a relatively low share. Performance has maintained rapid growth in recent years. The compound growth rate of the company's revenue/net profit in 2019-2022 was 53.98%/37.58% respectively. In particular, since 2021, with the rapid development of downstream new energy vehicles, the company's revenue scale has expanded rapidly. The revenue/net profit of the 1-3Q23 company was -17.59%/-24.48%, respectively; mainly due to the company's reduction in shipments to domestic customers with low gross margin in the third quarter. The price pressure of large downstream battery manufacturers was significant, and the profit margin for medium- and low-end artificial graphite was thin.
The total amount of capital raised for the issuance of convertible bonds to unspecified targets is no more than RMB 800 million. Of the net capital raised after deducting issuance fees, RMB 525 million will be used for the construction of a base for the integrated generation of 60,000 tons of artificial graphite anode materials; RMB 500 million will be used for the R&D center construction project; and RMB 225 million will be used to supplement working capital. Due to the insufficient production capacity of the company's artificial graphite, graphite, requires outsourced processing. In '22, the company's processing costs accounted for 29.45% of the main business costs. 1H23, as the graphitization self-production rate increased, this ratio fell to 11.75%. We believe this fund-raising project will help the company make up for the shortfall in artificial graphite production capacity, increase production capacity while increasing production capacity, reduce production costs, and improve product quality stability.
In terms of underlying equity, the actual controllers of the company are Zhong Yinghao and Zhou Pengwei (personal nature). As of June 30, 2023, the largest shareholder (Zhou Pengwei) held 14.49% of the company's shares. In terms of restricted stock sales, the company will not be involved in lifting the ban on restricted shares for some time to come. According to the latest announcement, 1.35% of the company's shares are currently pledged. Among them, 9.47% of Zhou Pengwei's shares were pledged, accounting for 1.35% of the share capital.
The market value of the underlying stock is small, and the elasticity is average. The total market value of the underlying stock is 3,829 billion yuan. The scale is small, accounting for 89.04% of the circulation market. The company's current P/E (TTM) is 29.11x, which is at the middle level in its own history, and P/B (MRQ) is 2.23x, which is at a low level in its own history. The interest of stock institutions is low. The volatility rate for the past 180 days is 35.62%. According to our model forecast, the annualized volatility for the next 2 months will be about 40.0%, with average elasticity.
Terms and pricing
The scale of debt conversion is small, and debt base protection is average. The current bond conversion scale is 8.0 billion yuan, the initial conversion price is 33.63 yuan, and the starting point of the conversion period: April 16, 2024, the latest average price is about 104.13 yuan, the term 6.0 years. The coupon interest rates are: 0.30%, 0.50%, 1.00%, 1.50%, 2.00%, 2.00%, 3.00%, maturity and redemption price 118.0 yuan. The YTM corresponding to face value is 3.61%. The debt base is about 86 yuan. The debt base protection is average. The downgrade clause is 85%, 15/30, the forcible clause is 130%, 15/30, and the resale clause is 70%, 30/30. All three clauses remain in mainstream form.
According to our pricing model, Muyuan Converted Bonds, Chenfeng Converted Bonds, Liuyao Converted Bonds, and Guanglian Converted Bonds have a large reference value for this period of debt conversion. We believe that their secondary market pricing should be around 126.18 yuan, with a premium rate of about 21.17%. As of November 5, 2023, the closing price of Xiangfeng convertible bonds was 122.8 yuan, with a premium rate of about 17.93%.
risks
Customer concentration is high; raw material prices fluctuate; and the consumption of new production capacity falls short of expectations.