Summary of the report:

Tongfeng Electronics is a veteran domestic manufacturer of capacitive film and thin film capacitors, and its controlling shareholder Tongfeng Group finally landed the equity delivery that began in 2007, and the comprehensive transformation to the private system will inject new vitality into corporate governance; the power electronic capacitor developed by the company since 2000 has entered the industrialization stage, which is difficult to be overtaken in a short time to fill the domestic gap for the first time. There is a broad import substitution space for power electronic capacitors in rail transit, power transmission and other industries, which is expected to promote the outbreak of the company's performance.

Five years of equity delivery finally came to fruition, and the old tree of system transformation emerged that Tongfeng Group, the controlling shareholder of Xinhua Company, began to try to introduce private capital in 2007, and then the process was shelved until Tieniu Group completed its wholly-owned acquisition at the end of 2011. After the ownership structure is straightened out, the actual controller of the company will be clear, and the transformation to the private system will inject new vitality into the development of the company, and the internal management mechanism of the company is expected to gradually improve, which will help to drive the performance to bottom and pick up.

Power electronic capacitors have been sharpened for ten years, and the import substitution detonation performance company has devoted itself to the domestic research and development of high-end power electronic capacitors since 2000. After more than 10 years, it has finally entered the stage of industrialization, which is the first time to fill the domestic gap. Because of its high threshold and no obvious competition pressure in the short term, the company's market share is expected to expand rapidly by import substitution through key customers such as CNR and the Institute of Electrical Sciences, and is expected to achieve sales of about 300 million yuan next year. The performance in the next 2-3 years will be highly flexible.

The product line is adjusted and the profit level enters the rising channel under the state-owned system, the company management is not fine enough, and the gross profit margin of the same product is lower than that of similar manufacturers. After the transfer to the private sector, the level of corporate governance is expected to gradually improve. At present, the adjustment of the original product structure, such as stopping production and losing DC capacitors, reducing the sales focus of AC capacitors to foreign countries, has achieved initial results. With the improvement of gross profit margin, the company's profit level has begun to enter the upward channel.

Profit Forecast and Investment suggestion Company has high barriers to power electronic capacitors, clear import substitution trend, high probability of future performance outbreak, and is realizing the transformation from traditional inefficient basic component manufacturers to specialized high-end component suppliers. We expect the company's EPS from 2012 to 2014 to be 0.10,0.35,0.68 yuan respectively, corresponding to the previous share price PE60, 18, 9 times. The "cautious recommendation" rating is given for the first time, with a target price of 10 yuan.

Risk hint

1. The market order of power electronic capacitors has yet to be fulfilled.

2. The price of imported polypropylene raw materials fluctuates.