Key points of investment:
Incident: On the evening of April 25, 2017, the company released its 2017 quarterly report. In the first quarter of 2017, the company achieved operating income of 292 million yuan (YOY 7.78%), and net profit attributable to the parent company was 36.78 million yuan (YOY 370.96%).
Civil-military integration business was consolidated, and performance increased dramatically over the same period last year. The company's performance increased significantly year-on-year in the first quarter of 2017 because the civil-military integration business was included in the scope of the consolidated report. Among them, operating income increased by 2.106 million (YOY 7.78%), and gross profit increased by 40.49 million (YOY 157.67%) due to a sharp increase in gross margin of 13.19 percentage points over the same period last year. Affected by additional financial shipping management expenses, the company's management expenses increased 5.5 million (YOY 45.37%); asset impairment losses increased 1.45 million year-on-year (YOY 62.33%) due to the year-on-year increase in accounts receivable balance; affected by the reduction in government subsidy programs, non-operating profit decreased 1.76 million (YOY 40.55%) year on year, and the company's net profit to the mother increased by 28.97 million (YOY 370.96%).
The traditional shipbuilding and offshore business is being upgraded and transformed into high-end products, and in vitro EPC platforms are expected to be included as the main body in the future.
The company has been deeply involved in the field of shipbuilding and marine engineering for many years. It has strong strength, virtual digital design capabilities, and has built a relatively complete collaborative design information platform. Currently, the global shipbuilding and offshore industry is in a slump. Relying on ship design and general contracting capabilities for ship engineering, the company is actively upgrading and transforming high-value-added products such as green energy-saving ship models and high-end special ship models to create new business growth space. Furthermore, the company's EPC business platform and production base, Otsu Heavy Industries is still outside the company, and it is expected that it will be incorporated into the company when conditions are right in the future.
The entire natural gas industry chain has been built, military and civilian integration continues to be deployed, and outreach is developing well. In terms of clean energy, the company relies on Woking Natural Gas's operating license qualifications, gas source guarantee and key technologies for LNG power ship systems to carry out water gas filling business, strives to build a whole industry chain for marine natural gas applications, and has set up a joint venture with CNOOC to ensure the sustainable and healthy development of the business. In terms of defense equipment, after the company acquired Jinhaiyun, it built the first military and civilian integration industrial park with exemplary significance in China, forming a large-scale equipment industry that designs, manufactures, and serves the defense needs of the entire military.
The leader of the auxiliary ships of the private army is looking forward to the emergence of a zero to one breakthrough. With the development of China's Deep Blue Navy, we expect the market size of the Navy's main battleships to be close to trillion dollars in the next 30 years, and the corresponding market space for military auxiliary ships is also impressive. Currently, the company relies on its strong strength in ship design and manufacturing and the advantages of Jinhaiyun's military goods manufacturing qualifications to explore and enter the military auxiliary ship market in due course to obtain continuous, high-value-added orders, and is optimistic that the military auxiliary ship business will achieve a breakthrough from 0 to 1.
Cooperating with China Shipbuilding Heavy Industries Group is expected to share the mixed reform dividends. The company cooperated with Beichuan 704 companies in 13 to establish Shanghai Hengtuo Shipbuilding; in 2015, a joint venture with Beichuan 702 established China Shipbuilding Heavy Industries (Shanghai) to save energy; and Wuhan Shipbuilding, an important member of the Strategic Cooperation Group, in '17. Furthermore, the actual controller of the company, Mr. Liu Nan, came from a Southern Ship background. As the mixed reform of north-south ships deepens, the dividends of the reform will be shared.
Profit forecasts and investment recommendations. It is estimated that the 2017-19 EPS will be 0.56, 0.73, and 0.92 yuan respectively. Combining the comparable company's average PE in 2017 and military business valuation premiums, the company will be given 60 times the PE of 2017, corresponding to the target price of 33.60 yuan, with a “buy” rating.
Risk warning. (1) The progress of military auxiliary ships is uncertain; (2) changes in the natural gas business market; (3) the expansion of high-value-added ships is not smooth.