Main points of investment:
Event: the company issued the first phase of employee stock ownership plan (preliminary plan) announcement on the evening of August 28, 2017.
According to the announcement, the employee stock ownership participation for the company's senior executives, core business / technical backbones and other personnel who need to be motivated, the total number of no more than 6000 people, including no more than 20 senior executives. The total amount of funds held by employees shall not exceed 100 million yuan, and the sources of funds shall be the legal remuneration of employees, self-raised funds and other ways permitted by laws and regulations. The lock-up period of the employee stock ownership plan is 1 year and the duration is 3 years.
The first phase of employee stock ownership encourages the long-term development of the company. According to the announcement, the company began its equity incentive program in 2013.
The three-year CAGR of the company's main business income in 2015 does not meet the assessment indicators of the second exercise period, and there is a great uncertainty whether the performance evaluation indicators of the third exercise period can be achieved. At the end of December 2016, the company terminated the equity incentive scheme and cancelled the stock options granted. This time, the company plans to carry out the first phase of employee stock ownership, which will establish a benefit-sharing mechanism, deepen the incentive system of the company's headquarters and subsidiaries, fully mobilize the enthusiasm and creativity of employees, attract and retain excellent management talents and business backbones, and promote the long-term development of the company.
Domestic wire and cable industry leader, the growth rate of the industry-leading. The company, which belongs to Baosheng Group, is the only large state-owned holding enterprise in China's wire and cable industry. It is one of the top 10 most competitive enterprises in China's cable industry, with a market share of 22.64% in 2016. The company's products mainly include electrical cables, bare wires and their products and special cables, which are mainly used in the national power grid, urban rail transit, automobile industry, shipbuilding and aerospace and other fields. Since joining AVIC in 2014, the annual compound growth rate of homed net profit in the past three years has reached 39.02%, which is much higher than the industry average of 10.63%.
Power cable business: benefit from the continuous construction of downstream power grid. According to the guiding ideology and overall goal of the national 13th five-year Plan, the "one special four" strategy and power substitution strategy will speed up the construction of smart grid with UHV power grid as the backbone and coordinated development of power grids at all levels. In particular, the construction of UHV channels for haze control will bring continuous demand growth to power cables. Power cable business is the support of the company's performance. At present, the company has successfully achieved full coverage of all 27 provincial bureaus and five major power generation groups in China. Products such as metal shielded cables, concentric conductor cables, 10kV, 35kV overhead insulated cables are the first choice for State Grid engineering. We believe that in the future, the company's relevant main performance is expected to benefit from the continuous construction of the downstream power grid.
Bare wire and its products business: the acquisition of Jinyuan Copper helps to create a cost advantage. The company's bare wires and their products are widely used in rail transit engineering, telecommunications engineering and motor manufacturing and other fields. In 2016, thanks to the strong external demand and the formation of the company's aluminum alloy cable production capacity, the company's production and sales of bare conductors and their products and power cables increased significantly. At present, the company is promoting the proposed cash acquisition of 51% stake in Jinyuan Copper. According to the unaudited report, Jinyuan Copper achieved a net profit of 53.5917 million yuan from January to October 2016. Jinyuan Copper has industry-leading technical advantages and cost control advantages. Its products, such as copper wire billet and round copper wire, are widely used in a series of bare wire products, and the technical level is leading in China. If the acquisition is completed, the company will effectively control the cost of upstream products and boost the profit growth of bare wires.
Equipment cable business: continue to expand, optimistic about the future relying on AVIC industry to grow into aerospace cable leader. The company's cable products continue to expand to the high-end equipment market, including the acquisition of Nissin Transmission in 2016, and Shanghai Anjie entered the field of electronic communications and mineral insulated special cables. At present, the company's equipment cables are widely used in aircraft, military industry, warships, marine industry, nuclear power, rail transit, electrical equipment and other high-end equipment fields, to achieve high-end products "heaven and earth into the sea" all coverage. In the aerospace field, the company's wire products have passed the military appraisal and jointly carried out EWIS design with relevant design and research institutes, becoming the first and only domestic manufacturer for domestic production and installation, in addition, the company's products have been successfully applied to the Jiuquan Satellite launch Center, contributing to the rocket launch of "Tiangong II" and "Shenzhou 11". The completion of the acquisition of Jinyuan Copper will increase the production capacity of the company's low-oxygen bright copper rods, enable the company to quickly enter the field of high-end special precision conductors, and provide strong support for the company's development of high-end wires and cables (especially aerospace cables). In 2014, 75% of Baosheng Group was transferred to Mechanical and Electrical Systems, which was listed as AVIC. In 2015, the company acquired a trustee of 52% of West Africa Hengtong to avoid peer competition. At present, the mechanical and electrical systems company supports Baosheng Group to become a major supplier of aviation cables, and is optimistic that the company will grow into a leading supplier of aerospace cables with the help of the group platform.
Profit forecast and investment advice. It is estimated that the EPS of the company from 2017 to 2019 will be 0.25,0.31,0.39 yuan respectively. With reference to the company's average PE valuation in 2017, the company is given a 30-fold PE valuation in 2017, with a target price of 7.50 yuan, maintaining a "buy" rating.
Risk hint. The cost control of cable raw materials is uncertain; the competition in the power cable market is intensified; and the progress of new products of high-end equipment and cables is not as expected.