The reasonable value range is 7.2-8.7 yuan. We expect the company's fully diluted earnings per share from 2013 to 2015 to be 0.43 yuan, 0.48 yuan and 0.58 yuan respectively. The valve industry is highly competitive, with a three-year compound growth rate of 5% and 8%. The company is expected to surpass the growth of the industry by raising funds to expand production and open up new customers, but the current profits are heavily dependent on the market for medium and heavy diesel engines in the domestic investment chain. We believe that the reasonable value range of the company is 7.2 to 8.7 yuan, implying a price-to-earnings ratio of 15 to 18 times forward earnings in 2014.
The company is a leading private enterprise in the domestic automobile valve industry. The main products are diesel engine and gasoline engine valves, downstream covering heavy vehicles, light trucks, large buses, minicars, cars, hybrid vehicles and other vehicles. In 2012, the company sold about 1000 firewood and 1800 gasoline engine valves respectively, with an income of 300 million yuan and a net profit of 39 million yuan. The domestic market share is about 8-10%, ranking third in the industry.
The ownership structure of the company is relatively scattered. With the exception of 4 corporate shareholders and 1 limited partnership shareholder, the other 56 shareholders are all natural persons, of which nine jointly control the company with a shareholding ratio of 46.43%. After the issue, the proportion of shares held by the controlling shareholders will be diluted to 34.82%.
From 2010 to 2012, the company's internal and external sales complement each other to achieve stable income, open up new customers and increase development space. The company's profit depends on domestic diesel engine matching and foreign after-sales market, this year and next year the industry pressure will be greater. Compared with other large-scale competitors, the company's competitive advantage is not obvious. In 2013, the company opened up new customers such as Caterpillar Inc and Changan Mazda, which is expected to ease the pressure on the demand level of the industry.
Fund-raising projects are mainly used to expand production capacity. The production capacity of gasoline engine valves will be increased by 11.5 million units per year, diesel engine valves will be increased by 8.5 million units per year, and the overall production capacity will increase by 80% to 45 million units per year.
Risk tips: 1, customer concentration is high risk, 2, domestic car sales are not up to expectations, 3, new capacity utilization is not up to expectations, 4, new energy vehicle promotion acceleration leads to reduced valve demand.
