The company achieved a turnround in the first quarter of 2017, and the results are expected to be even brighter: the company realized operating income of 1.376 billion yuan in the first quarter, an increase of 157.28% over the same period last year, and realized a net profit of 1 million yuan, reversing losses. The company's asset impairment loss fell sharply to-98800 yuan from 43.36 million yuan in the first quarter of 2016, while the company's profitability gradually improved, and its gross profit margin increased by 3.18 percent over the same period last year. The company's performance indicators are gradually improving, and it is expected that the company's reported performance will be more eye-catching.
With the recovery of traditional business and the superimposition of new business into a performance contribution period, the company's high performance growth is full of momentum: benefiting from supply-side reform and Belt and Road Initiative, the traditional heavy machinery business began to get out of the ice valley in the fourth quarter of 2016. After a large amount of capital investment and cultivation in the early stage, the Chinese standard EMU axles with a speed of 350 kilometers per hour developed by the company have been certified; the drilling platform has been launched and is expected to be sold in 2017. The company's orders have improved significantly since the second half of 2016, and the company is expected to have full orders on hand to meet the annual growth in 2017. The recovery of traditional business and superimposed new business has entered a period of performance contribution, and the company's future performance is full of driving force for high growth.
The expectation of the reform of state-owned enterprises in Shanxi Province is still strong: the reform plan of state-owned enterprises in Shanxi Province is expected to be introduced in mid-2017, and we think that the reform of state-owned enterprises in Shanxi Province is worth looking forward to both in terms of progress and intensity. As the only listed company with high quality of heavy equipment in Shanxi Province, the expectation of national reform is strong.
The logic of investment remains the same and strong recommendation is maintained. Based on the existing business, the net profit in 2017-19 is expected to be 2.1,4.4 and 570 million yuan respectively, and the EPS is 0.08,0.17,0.22 yuan respectively. The company's current market capitalization of 10.7 billion is significantly undervalued, maintaining a target market capitalization of 17 billion yuan, a target price of 6.6 yuan, and a highly recommended rating.
Risk hint: supply-side reform slows down; emerging business expansion is low-expected.
