Brief comment on performance
In the first half of 2015, the company's operating income was 1.866 billion yuan, down 15.73 percent from the same period last year; the net profit belonging to shareholders of listed companies was 231 million yuan, up 305.29 percent from the same period last year; and the net profit belonging to shareholders of listed companies after deducting non-recurring profits and losses was 1.06 million yuan, down 96 percent from the same period last year. Diluted EPS0.15 yuan per share, an increase of 275% over the same period last year
Business analysis
The substantial increase in performance mainly comes from the transfer of Yingli shares: Baofeng Electric originally held 25.99% of Tianwei Yingli, and reached an agreement in January 2014. 7 per cent of the shares were transferred to Baoding Tianwei Group Co., Ltd. (referred to as "Tianwei Group"), a major shareholder (now the second largest shareholder). The transfer was finally confirmed in the first half of this year, with an amount of 219 million yuan, which was included in non-recurrent profits and losses.
The sharp decline in deduction non-net profit was mainly due to the sale of the military equipment Finance Company: in 2014, the company sold a 10% stake in the Arms equipment Group Finance Co., Ltd. (referred to as the "Armament Finance Company") for 90.0466 million yuan. In the first half of 2014, the military uniform Finance Company paid 17 million yuan in dividends to Baofang Electric. As a result, the loss of dividend rights after the sale of the military uniform finance company led to a sharp decline in the company's non-net profit in the first half of 2015.
The main revenue fell 15.73%, mainly due to the 90.66% decline in export recognized income compared with the same period last year: the decline in the company's main revenue in the first half of the year was mainly due to the decrease in exports in the same period, and some key export projects did not reach the delivery date. We expect that with the completion of the company's Indian plant in 2016 and the promotion of Belt and Road Initiative, the company's export business will pick up in the future and will benefit from the demand for high-end transformers when "DC UHV" goes out.
After entering the UHV delivery period in the second half of the year, the performance will be significantly improved: according to the previous bid winning results of the company, the four UHV winning transformers and reactors of "Huainan-Shanghai", "Ningdong-Shaoxing", "Ximeng-Shandong" and "Mengxi-Tianjin South" will be confirmed in the second half of 2015 ("Mengxi-Tianjin South" may be delayed to 2016). Have a significant positive impact on performance. The company has plenty of orders on hand, and the contract price that won the bid in 2014 increased by 63% compared with the same period last year, and the future performance is expected.
One of the largest targets of DC UHV elasticity, operating cash flow is expected to improve significantly in 2016: we pointed out in previous industry reports that converter transformers account for the largest proportion of DC UHV main equipment. The company is the "three major changes" the smallest volume, the most single business enterprise, relatively flexible. On August 13, the company announced that the State Grid Corporation had won the bid for "Jinbei-Nanjing" ±800kV UHVDC project transformer products, with a total of 14 transformers, with a winning bid amount of 993 million yuan.
According to our estimates, the gross margin of winning the bid is expected to reach 33% of the total gross margin in 2014. We expect that from the second half of 2015, UHV construction will enter a new stage dominated by "direct current", and the company's operating cash flow will be significantly improved in 2016. In addition, it should be noted that the ultra-high pressure bidding in August is actually a move by the two lines of "Jiuquan-Xiangtan and Jinbei-Nanjing", and Baofang did not win the bid in the "Jiuquan-Xiangtan" line. Different from the previous "Xiluodu-West Zhejiang" and "Lingzhou-Shaoxing" lines, the market share of Chongqing ABB and Guangzhou Siemens has increased, which has squeezed the company's performance to a certain extent. The market competition pattern is constantly changing in the future. as the leader of the traditional transformer, under the general trend of import substitution, we think that the company's market share will increase.
Risk factors.
The approval of new UHV lines is lower than expected.
The progress of UHV line construction is lower than expected.
The market share of converter transformer is lower than expected.
Catalyst
New domestic UHV lines approved
Overseas DC UHV lines started construction and won the bid
Reform of state-owned enterprises
Profit forecast and investment suggestion
It is estimated that in 2015-2017, the diluted EPS will be 0.2, 0.38 and 0.52, corresponding to the current stock price of 55x/30x/22xPE. Give a buy rating with a target price of 14 yuan.
