summary
Chutian Convertible Bonds will be listed on February 29 (Thursday). The scale is 1 billion yuan, and the conversion rating is AA. According to our new securities pricing model, we believe that in the current situation of the company's stock price, its bond conversion listing position may be around 120.73 yuan, with a premium rate of about 28.3%.
Underlying stock analysis
The issuer, Chutian Technology, is a leading domestic pharmaceutical equipment manufacturer. Its main business is R&D, design, production, sales and service of aqueous pharmaceutical equipment. The company is a representative enterprise in China to replace imported pharmaceutical equipment products. Since its launch, it has transformed from a single product line to a platform providing equipment and process services integrating multiple product chains such as pharmaceutical design, verification, water treatment, bioengineering, disposable consumables and processes, intelligent aseptic packaging, etc. Specifically, in the company's main business structure in 2022, sterile formulation solutions and stand-alone machines accounted for the highest proportion, reaching 29.35%. The rest include testing and packaging solutions and stand-alone machines (accounting for 27.56%), pharmaceutical water equipment and engineering system integration (accounting for 13.25%), accessories (accounting for 10.31%), bioengineering stand-alone machines and systems (accounting for 10.29%), solid preparation equipment (accounting for 7.35%), and the rest of the business accounts for a relatively low share.
Overall, the downstream biopharmaceutical sector has maintained a high level of prosperity. The company has not been slow to invest in production capacity in recent years. The company produced 5102 pharmaceutical equipment units in 2022, an increase of 61.8% over 2020. At the same time, the company's consumption of new production capacity is relatively good. In recent years, the capacity utilization rate calculated based on theoretical working hours has remained above 100% (122.79% in 2022). While benefiting from domestic replacement of pharmaceutical equipment, the company accelerated the development of overseas markets. In the first half of 2023, the European region achieved revenue of 384 million yuan, an increase of 62.1% over the previous year.
In recent years, the company has continued to invest more in building a multi-product chain platform to enrich the product matrix. In April 2023, Chutian Technology was established to focus on high-end centrifuges and other scientific instruments to launch bioengineering front-end innovation projects, and a biopharmaceutical process center was set up to further consolidate the competitive advantage within the industry. In June 2023, the company also set up Chutian Jingbang, which is mainly engaged in purification engineering, EP engineering, etc., and lays out three major businesses: peptide synthesis equipment and peptide cracking equipment, pharmaceutical non-metallic components, and powder intelligent system equipment. By the end of 2023, Chutian Jingbang's orders had reached 115 million yuan. We believe that as the company's above projects are implemented one after another, profitability is expected to increase further.
The total capital to be raised by the company is RMB 1.00 billion by issuing convertible bonds. After deducting issuance fees: 630 million yuan for bioengineering phase I construction projects; 250 million yuan for medical equipment and materials technology research center projects; and 120 million yuan to supplement working capital. Among them, the first phase of the bioengineering construction project mainly focuses on the construction of four major functional modules: a digital design and simulation center for stainless steel tank bioreactors and liquid dispensing systems, an intelligent flexible processing line for stainless steel tanks, a processing line for key components, system integration and engineering verification centers. The company expects that after completion, it will provide safe and advanced large-scale bioreactors and dispensing systems for biopharmaceutical industries such as vaccines, antibodies, biofermentation, etc., to achieve efficient, high-quality, intelligent green production of large-scale biological reactions.
In terms of financial data
The company's revenue CAGR for 2018-2022 was 40.98%, and the net profit CAGR for the same period was 92.51%. Taken together, the company ranked high in growth in the industry. This is mainly due to strong demand for downstream biopharmaceuticals combined with the rapid deployment of the company's production capacity. Among them, demand for domestic vaccine-related production equipment surged in 2021, the volume and price of the company's core products increased sharply, and revenue and net profit to mother in 2021 were +47.08%/+182.45%, respectively. 1-3Q2023 achieved revenue of 5.13 billion yuan (YoY +14.2%) and net profit of 290 million yuan (YoY -37.9%) during the same period. The decline in profit was mainly affected by changes in industry demand, increased competition, and fluctuations in raw material prices.
The company's ROA for the past 3 years (2020-2022) was 5.3%, compared to 5.4% in 2022. There is some fluctuation in gross margin. The average gross margin for the past 3 years was 36.5%, compared to 36.0% in 2022. The average ROA of companies in the same industry in the past 3 years was 5.9%, and the average ROA in 2022 was 4.6%. The industry's average gross margin for the past 3 years was 28.8%, and the average gross margin for 2022 was 27.2%. Overall, the company is highly profitable in the industry.
In terms of original shares, the actual controller of the company is Tang Yue (personal nature). As of September 30, 2023, the largest shareholder (Changsha Chutian Investment Group Co., Ltd.) held 37.95% of the company's shares. In terms of restricted stocks, the ban on 0.6% of restricted shares will be lifted on August 3, 2026. The company currently has no equity pledge.
The market value of the underlying stock market is moderately small in the subject of the conversion bond, and the elasticity is average. As of the close of trading on February 27, 2024, the total market value of underlying shares was 5.555 billion yuan. It was moderately small among those converted into bonds, accounting for 89.55% of the circulation market. The company's current P/E (TTM) is 14.17x, which is at its lowest level in its history, and its P/B (MRQ) is 1.19x, which is at a low level in its own history. Underlying institutions have received average attention. The volatility rate in the past 180 days is 35.31%. According to our model forecast, the annualized volatility will be about 38.0% over the next 2 months, and the elasticity is average.
Terms and pricing
The current loan conversion scale is medium, and the debt base protection is strong. The current bond conversion scale is 1.0 billion yuan. The initial share transfer price is 10.0 yuan. The starting point of the conversion period: August 6, 2024, the latest parity price is about 91.2 yuan, and the term is 6.0 years. The coupon interest rates are 0.30%, 0.50%, 1.80%, 2.00%, 1.50%, 1.80%, 2.00%, and the maturity redemption price is 110.0 yuan. The corresponding YTM at face value is 2.41%, and the debt base protection is strong. The revised terms are 85%, 15/30 (net assets and face value are the base), the forcible redemption clause is 130%, 15/30, and the resale clause is 70%, 30/30.
According to our pricing model, Yi Rui to bond, Shen Hao to bond, Xing Shuai to 2, Shenghang to bond, and Zhenyu to bond have a large reference value for current bond conversions. We expect their secondary market pricing to be around 120.73 yuan, with a premium rate of about 28.3%. We think that when the listing price is above 124.35 yuan, it can be considered overvalued, and when it is above 126.76 yuan, it is significantly overestimated. When the listing price is below $117.11, it can be considered undervalued, and when it is below $114.69, it is significantly undervalued.
risks
Raw material prices fluctuate; industry competition intensified; downstream demand weakened.