Core viewpoints
Dehong shares will soon be listed in A shares. The company plans to issue 19.6 million new shares at an issue price of 135000 per share, raising more than 260 million yuan. After the issue, the total share capital after the issue does not exceed 78.4 million shares, which has a market capitalization of more than 1 billion yuan according to the issue price.
Dehong Co., Ltd. is an automotive alternator research and development, manufacturing and sales enterprises. Vehicle alternator is a mature product, which is standard for internal combustion engine and its business is more traditional. The company has worked hard in this field for many years and has some mainstream commercial vehicle customers, such as Jiangling Motor, Fukuda Cummins, Deutsche FAW and so on. In 2015, the company sold about 1 million automotive AC engines, with a market share of about 4 per cent in the entire automotive industry and about 25 per cent in the commercial vehicle market. In the same period, the company realized revenue and net profit of 420 million yuan and 50 million yuan respectively, with a net interest rate of 13%. The industry is close to maturity, and the future growth of the company comes from the expansion of market share. We believe that the automotive alternator market is close to maturity, and the future product sales are basically synchronized with the growth rate of the automobile market. According to the forecast of the China Automobile Association, the commercial vehicle market is expected to decline in 2016, but the range will be narrowed compared with 2015-9%. Therefore, Dehong's future performance growth mainly depends on market share expansion, including the market share expansion of existing core customers such as Jiangling Motor and Fukuda Cummins, and the expansion of domestic passenger car engine market and foreign engine market. We think the fastest growth period of the company is over.
Performance estimate: according to the company's prospectus, the company achieved revenue of 420 million yuan in 2015, basically the same as in 2014, and a profit of 50 million yuan in the same period, an increase of 8% over last year. Looking forward to the first quarter of 2016, the company expects revenue to fall by-100.0% year-on-year, and net profit belonging to parent shareholders to change by-5% year-on-year. We advise investors to pay careful attention.
Risk: in the first two months of 2016, the sales performance of major customers was not satisfactory. The cumulative sales of Jiangling, Sinotruk and Foton fell 33%, 18% and 14% year-on-year, with only 34% growth recorded by Fukuda Cummins.