Event: the company released its annual report for 2016, with annual revenue of 195 million yuan, a decrease of 60.42% over the same period last year, a net profit of 76 million yuan, an increase of 64.10% over the same period last year, and a corresponding basic EPS of 0.15 yuan, an increase of 66.67% over the same period last year. The company is in the period of industry transformation, and the main profit in 2016 still comes from the investment income from the sale of some real estate projects and the transfer of equity.
The transformation of the industry is firmly in progress. The company began to seek transformation in 2014, issued a strategic transformation plan in 2015, from the real estate industry to the superalloy industry, the transformation is progressing smoothly and orderly. The company still retains a number of policy-encouraged and deterministic real estate projects. In 2016, the company sold its subsidiary Wanze Real Estate and Shenzhen Bixuan trading stake.
Raise funds to invest in the field of superalloys. The company's application for non-public offering of shares has been accepted by the China Securities Regulatory Commission, and it is proposed to raise no more than 1.3 billion yuan for the manufacturing project of superalloy materials and components in Shenzhen-Shantou Special Cooperation Zone. after the completion of the project, the annual production capacity of ultra-pure superalloy, advanced engine blades and 60 tons of superalloy powder will be built. The payback period of the raised investment project is 6.29 years, and the internal rate of return of the project is 20.02%. The company is expected to add an average annual income of 1.28523 billion yuan and an average annual net profit of 351.08 million yuan.
Core competence of R & D-Central South Research Institute. In 2014, the company and Central South University jointly invested in the establishment of a high-end superalloy research and development company Wanze Central South Research Institute. At present, Wanze Central South Research Institute has completed the development of a number of key technologies, and has established cooperative relations with some domestic research institutes and enterprises.
Wanze Central South Research Institute has established a precision casting engineering center of 1600 square meters as an engineering base for precision casting blades, and has successfully smelted more than 300 furnaces in the research and development of superalloy master alloy technology. the core technology system of ultra-high purity superalloy smelting has been established.
Profit forecast and valuation. We believe that the advantages of the company are: first, it has a strong team of experts in the field of superalloy research and development; second, it relies on Central South University to build Wanze Central South Research Institute; third, the single crystal blade is located in the demand of the new domestic helicopter engine, the master alloy is located in high-end aviation materials, the company's overall product positioning is accurate and the market space is large. We estimate that the corresponding fully diluted EPS of the company from 2017 to 2019 is 0.20,0.34,0.40 yuan respectively. With reference to the valuation of the superalloy-related industry, due to the more comprehensive transformation of the company, and there is no traditional steel business except superalloy, the valuation is higher than that of mixed-product enterprises, giving the company an "overweight" rating of 95 times the corresponding PE in 2017 and a target price of 19 yuan in 6 months.
Uncertainty analysis. Research and development schedule risk, downstream demand is lower than expected.