summary
Lido Convertible Bonds will be listed on December 5 (Tuesday) at a scale of 300 million yuan. According to our new securities pricing model, we believe that in the current situation of the company's stock price, the bond conversion listing position may be around 127.09 yuan, with a premium rate of about 31.23%.
Underlying stock analysis
The issuer, Lidao New Materials, specializes in deep processing of aluminum, and has a large share in the field of prepainted aluminum for construction, but there is still a gap between production capacity and the leaders in the same industry. Both upstream and downstream are scattered. Profitability has been pressured by weakening demand in the downstream construction industry since 22 years. In recent years, it has actively deployed the aluminum field for new energy vehicles. The products are mainly color-coated aluminum in the construction industry, color-coated aluminum for food packaging, and finely cut aluminum. They are equipped with large-scale roller coating lines specially designed for aluminum coil roller coating, and have introduced advanced ultra-wide aluminum roller coating lines and ultra-thick aluminum coil roller coating lines, which integrate many processes such as drawing, cleaning, drawing, embossing, cross-cutting, vertical cutting, etc. The products are widely used in construction materials, food packaging, transportation, electronics and other markets. By the end of '22, the company had a production capacity of 50,000 tons/year for color-coated aluminum for the construction industry and 24,000 tons/year for food packaging aluminum. After the combined calculation of the future material processing business, the company's capacity utilization rate in '22 was 88.67%, down 9.66 pcts from the previous year. This was mainly due to the impact of the downstream construction market in the second half of '22, a decrease in orders, and partial completion of the combined production expansion project. The company's capacity utilization rate has continued to rise since the second quarter of '23, and the company's capacity utilization rate reached 89.25% in 3Q23.
Specifically, in the company's main business structure in '22, architectural color-coated aluminum accounted for the highest proportion, reaching 44.38%. The rest include functional aluminum for food packaging (accounting for 32.69%), fine cutting aluminum (accounting for 14.54%), and the rest of the business accounts for a relatively low share.
The total capital raised by this issuance of convertible bonds will not exceed 300 million yuan. The net amount after deducting the relevant issuance fees will be used for new aluminum projects with an annual output of 86,000 tons of new energy battery collector materials (Phase II). The company expects to increase the annual production capacity of 40,201 tons of battery foil (optical foil) and 40,000 tons of aluminum strip after delivery, enriching the company's product range and optimizing the industrial layout.
In terms of financial data:
The company's net profit has declined in recent years. The company's compound revenue in 2018-2022 increased by 6.84%, and net profit to mother decreased by -3.30%. Mainly due to weakening demand in the downstream construction industry since '22, the company's profitability was under pressure due to a sharp decline in capacity utilization, and net profit to mother ratio of -8.13%/-33.50% YoY in '22. The average compound revenue growth rate of companies in the same industry in the past five years has reached 17.5%, and the net profit growth rate has reached 12.8%.
The company's average ROA over the past 3 years (2020-2022) was 6.1%, compared to 4.7% in 2022. Gross margin is relatively stable, with an average gross margin of 13.4% over the past 3 years and 12.1% in 2022. The average 3-year ROA for companies in the same industry was 6.8%, and the 2022 average ROA was 7.0%. The industry's 3-year average gross margin was 20.0%, and the 2022 average gross margin was 19.3%. 1-3Q2023 achieved revenue of 1.14 billion yuan (YoY -5.9%), and net profit to mother for the same period was 60 million yuan (YoY -32.4%).
The company's financial risk is moderate. We estimate the risk factor for pure debt to be 2.0%. The company's debt burden is moderate. As of 3Q23, the company's balance ratio was 25.27%. Liquidity is medium, with a quick moving ratio of 1.5 and a cash short-term debt ratio of 0.9. The scale of operation is small, with revenue of 1.53 billion yuan in '22.
In terms of original shares, the actual controllers of the company are Cai Hong and Cai Zhengguo (personal nature). As of September 30, 2023, the largest shareholders (Cai Zhengguo) held 56.84% of the company's shares. In terms of restricted stocks, the company will not be involved in lifting the ban on restricted stocks for some time to come. The company currently has no equity pledge.
The market value of the underlying stock is small, and the elasticity is weak. The total market value of the underlying stock is 2,684 billion yuan. It is small in size and accounts for 100% of the circulation market. The company's current P/E (TTM) is 43.97x, which is at a high level in its history, and its P/B (MRQ) is 1.68x, which is at a high level in its own history. Underlying institutions have received little attention. The fluctuation rate in the past 180 days was 24.2%, and flexibility was weak.
Terms and pricing
The scale of debt conversion is small, and debt bottom protection is weak. The current bond conversion scale is 300 million yuan, and the initial share transfer price is 13.01 yuan. The starting point of the conversion period: May 21, 2024, the latest parity price is about 98.77 yuan, and the term is 6.0 years. The coupon interest rates are 0.20%, 0.40%, 1.00%, 1.80%, 2.50%, 3.00%, and the maturity redemption price is 115.0 yuan. The corresponding YTM at face value is 3.27%, and the debt base protection is weak. The revised terms are 85%, 15/30, the forcible redemption clause is 130%, 15/30, and the resale clause is 70%, 30/30. All three clauses remain in the mainstream form.
According to our pricing model, Eddy Bonds, Jinhong Convertible Bonds, Jinhong Convertible Bonds, etc., have great reference value for current bond conversions. We expect their secondary market pricing to be around 127.09 yuan, with a premium rate of about 31.23%. We believe that when the listed price is above 130.91 yuan, it is significantly overestimated; when it is above 133.45 yuan, it can be considered undervalued; when the listed price is below 123.28 yuan, it can be considered undervalued, and when it is below 120.74 yuan, it is considered to be significantly undervalued.
risks
Prices of raw materials fluctuated; consumption of new production capacity fell short of expectations; downstream demand weakened.