Main points of investment:

Industry leader, rapid growth in performance. The company was founded in 1998 and listed on the stock market in November 2015. It is a national forestry industrialization key leading enterprise integrating seedling cultivation, afforestation and wood processing. The main products include poplar composite container floor, COSB composite container floor, environmental protection board and other high-quality, new wood composite materials, as well as fast-growing poplar seedlings, Photinia, cedar, sweet-scented osmanthus and other green seedlings and landscape trees and other forest products. The company's annual income is 1.308 billion yuan (yoy26.84%), and the net profit is 384 million yuan (yoy42.49%). From the income of the main products, the container floor is 628 million yuan, environmental protection board 494 million yuan, green seedlings 120 million yuan, fast-growing poplar seedlings 40 million yuan, wood 24 million yuan. In the first three quarters of 2017, the income was 1.279 billion yuan (yoy30.66%) and the return net profit was 348 million yuan (yoy21.24%). In terms of quarter-by-quarter, the income of 2017Q1-Q3 was 3.14 (yoy-9.44%), 4.18 (yoy53.04%) and 5.47 (yoy52.46%) respectively. The rapid growth of performance is mainly due to the growth of demand in the container floor market, the gradual release of production capacity of the superimposed company, and the thickening performance of New Huachang.

Container floor has the advantages of low cost, high performance and profitability. The gross profit margin of the company's container floor in 2015 and 2016 is 29.04% and 30.87% respectively, while that of peers is generally about 10%. We summarize that the main reasons for the high gross profit of Kangxin new materials are as follows: through independent research and development, ① uses fast-growing poplar and other small fuelwood instead of tropical broad-leaved forest to reduce raw material costs; ② is rich in forest resources to ensure stable supply and demand of raw materials and further reduce costs. ③ develops environment-friendly quaternary resin adhesive to replace toxic phenolic glue (a must for traditional process) and reduces the cost of auxiliary materials; ④ cooperates with German company Diefenbach to develop the world's first fully automated and numerically controlled COSB high-strength directional structural board production line to reduce labor costs; ⑤ 's "self-production + direct selling" business model eliminates the multi-layer distribution links of contract manufacturers and intermediate dealers, shortens the production and marketing chain and improves gross profit margin.

The container bottom plate benefits from the improvement of container prosperity, and the OSB board is being replaced at an accelerated speed. With the gradual recovery of international trade and container manufacturing this year, the growth of container ownership and renewal has directly led to an increase in the demand for container floor market, and the company has directly benefited from being a leader in the industry. At the same time, the raw material of OSB board is sub-small fuelwood, which is easy to obtain, low cost and excellent performance of OSB board, so it is speeding up to replace the traditional plywood. The company has the world's first fully automated, numerical-controlled COSB high-strength directional structural board production line, which has the advantages of low cost of raw materials, high production efficiency, high utilization rate of surplus materials and flexible production. The capacity release of container floor and environmental protection board since 2016 is mainly due to the gradual release of the production capacity of the company's 275000 m3 COSB production line.

The active layout of the wooden house market will open up new growth points. The company set up a subsidiary Hubei Tianxin layout cabin market in October 2016. At present, the team has set up and purchased a fully automated German production line, and some projects have begun to progress steadily, and the company expects to gradually release profits in the next 2-3 years. We believe that in the future, the company is expected to make use of the advantages of low cost and high efficiency of COSB production line to take OSB board as the main material for the production of wooden houses, rapidly expand foreign and domestic markets, and open up new and powerful growth points.

Profitability and valuation. It is estimated that the net profits attributed to the parent company from 2017 to 2019 are 4.67,5.91 and 763 million yuan respectively, and the corresponding EPS are 0.45,0.57,0.74 yuan per share respectively. Comparable companies have 17 years of PE between 18X-35X. We believe that the company as an industry leader, the entire container manufacturing industry is warming up, as a leading profitability industry leader, with large-scale production capacity, good product performance, outstanding profitability and other advantages, with the company's 275,000 square COSB production line, 200,000 square bamboo and wood composite production line, 120,000 square new Huachang production line and other gradually release capacity, the market share is expected to further increase At the same time, the company is actively laying out the cabin market, which will open up new and powerful growth points in the future. Give a certain valuation premium. Give the company 25 times PE in 17 years, corresponding to the target price of 11.25 yuan, "overweight" rating.

Risk hint. The container manufacturing industry is depressed, raw materials fluctuate, and the downstream customer expansion progress is slow.