Incident: On November 15, 2016, the company announced that it had signed a “Subcontract for Design, Construction and Delivery of a Multifunctional Offshore Construction Self-Lift Platform” with CCCC. The contract amount was 128 million yuan. The execution period of the contract was: before February 22, 2018.
Traditional businesses have blossomed, and the transformation of the business sector forms the support for performance. Shipbuilding and offshore engineering is the company's traditional business. Relying on years of accumulation, the company has successfully delivered more than 1,000 ships and marine engineering projects of all kinds. With continuous investment in technology research and development and market development, the company's marine and marine engineering product development capabilities and technical service capabilities are still being strengthened, and market recognition in high-end fields is also constantly improving. The contract amount accounted for about 10.73% of the company's total revenue in 2015. According to the progress of the project, it is expected to have a positive effect on the company's business performance in 2017 and the first half of 2018. By the end of the third quarter of 2016, the company had successfully merged and acquired three companies, including Woking Utilization, Jieneng Transportation, and Golden Shipping, through capital operation methods, all of which are currently operating well. The increase in the performance of the company's main business came from sales of Golden Shipping defense equipment related products and Woking Natural Gas. Among them, Woking promised that the audited net profit achieved in 2014, 2015, and 2016 would not be less than 20 million yuan, 26 million yuan, and 33.8 million yuan; the actual controller of Golden Shipping promised that the total net profit of Gold Shipping in 2015-2017 would not be less than 287 million yuan. It strongly forms the company's performance support.
The military-civilian integrated science and technology industrial park is the company's long-term plan, and the prospects are promising. The company and the Taizhou Pharmaceutical High-tech Industrial Park Management Committee signed a “Framework Agreement for Entering the Park” on June 28, 2016, to invest in the establishment of the first military and civilian integrated technology industrial park in China within the pharmaceutical industrial park. Using the existing qualifications, market and technical advantages of Tianhai Defense and its holding subsidiaries in the military industry, they design, manufacture, and service a variety of equipment covering the defense needs of the entire military to form a large-scale industry. This move gave full play to their respective resource advantages, responded positively to the military and civilian national defense development strategy, and integrated military and civilian resources to serve the country's national defense construction. If successfully implemented, Tianhai Defense will enter a new voyage in the military industry, with great prospects for development.
The synergistic effect is obvious, and it is expected to enter the field of auxiliary ships. The company seized the historic opportunity of large-scale investment by the Navy, obtained a complete license to produce military products after acquiring Jinhaiyun, and entered the military auxiliary ship manufacturing field against the backdrop of declining sentiment in the civilian shipping market, opening up broad space for the company's future development. After the acquisition is completed, Otsu Heavy Industries outside of the company is expected to be used as the company's production platform. Tianhai Defense will provide the design of military auxiliary ships, and Golden Shipping will provide military qualifications, complementing each other, and the synergies will be remarkable.
Profit forecasts and investment recommendations. The 2016-18 EPS is expected to be 0.61, 0.87, and 1.30 yuan respectively. Considering the valuation premium brought about by the transformation of the military industry business and the subsequent growth potential of the military-civilian integration industrial park, combined with comparable company valuations, the company was given 70X in 2016, maintaining the target price of 42.70 yuan, maintaining the “buy” rating.