Main points of investment:
Jiangxi civilian explosion leading enterprise. At present, Cathay Pacific Group is the only civil explosive equipment production enterprise in Jiangxi Province, and one of the domestic civil explosive industry production enterprises with the most complete products, engaged in the research and development, production, sales and blasting services of civil explosive equipment. The company's GDP has been ranked among the top 15 civil explosive equipment manufacturers in the country for many years in a row. From 2015 to 2017, the company's operating income was 483 million yuan, 472 million yuan and 565 million yuan respectively, an increase of-15.47%, 2.32% and 19.79% respectively over the same period last year. From 2015 to 2017, the company's gross profit margin was 52%, 46.87% and 42.54%, respectively, with a slight decline in gross profit margin.
The industry benefits from infrastructure construction, and the concentration needs to be improved. The problem of "small, scattered and low" exists in China's civil explosion industry for a long time. The price of ammonium nitrate, the raw material in the upstream, directly affects the profits of the industry, while the downstream mining industry supports the market demand of the industry. In the future, the investment of the national economic development to the railway, highway, hydropower, water conservancy and other infrastructure industries will add new impetus to the development of the civil explosion industry. At present, the company's main competitors include grand explosion, Jiulian Development, Jiangnan Chemical, Orica and IPL and other domestic and foreign counterparts.
Benefit from the trend of industry integration, the acquisition of civil explosive assets in the province. In 2018, Cathay Pacific Group successfully acquired 100% equity of Weiyuan Minbao and Jiang Tong Minbao through targeted issuance of shares to Minbo Investment. The transaction price totaled 853.9947 million yuan, and the company's production capacity increased significantly. Among them, the annual permitted production capacity of industrial explosives will increase to 168000 tons, industrial detonator production capacity 9100 million, plastic detonator 300 million meters, industrial detonator cord 6 million meters. At the same time, through capital increase, Cathay Pacific Group has built a new 12000-ton emulsion explosive production line in Nigeria on the platform of Xiamen Deheng, which we expect to bring new growth momentum to the company in the future.
Change the use of fund-raising funds and invest in Changfeng corridor project. Most of the 317.7403 million yuan raised by Cathay Pacific Group will be used for blasting integration construction, technical transformation and R & D platform construction projects. At present, the technical transformation project has been successfully completed and the expected benefits can be achieved. the company adjusts the capital investment of the blasting service integration construction and R & D platform construction project according to the market demand and subsidiary conditions. it is proposed to raise a total of 106.2024 million yuan to invest in the Changfeng corridor project, so as to ship and export limestone, dolomite and ore mined by Changfeng and surrounding large mines through the wharf on the south bank of the Yangtze River. It is a positive attempt for the company to extend the end of the civil blasting industry chain and promote the integrated construction of blasting service.
Profit forecast and valuation space. The profitability of the company's main products will continue to improve, while the company will actively expand overseas markets and other areas, which will bring new growth potential for the company. We estimate that the EPS of the company in 18-20 years is 0.20,0.27,0.31 yuan respectively, and the EPS in 19 years after acquisition is 0.42 yuan. We give the company an industry average of 18-22 times PE in 19 years, with a reasonable value range of 7.56-9.24 yuan, and the first coverage is better than the big city rating.
Risk hint: the price of raw material ammonium nitrate fluctuates; the acquisition project does not meet expectations.