I. Overview of events
On June 4, the company issued an announcement that the company increased its capital to Haiwei locomotive with nearly 70 million yuan, accounting for 13.47% of Haiwei locomotive after the capital increase. Haiwei locomotive is a qualified supplier of brake discs for high-speed EMU, intercity trains and urban rail transit trains designated by Beijing Longitudinal and horizontal Mechanical and Electrical Technology Development Co., Ltd under the Chinese Academy of Railway Sciences. it is the only supplier of brake discs for Fuxing China standard EMU.
II. Analysis and judgment
1. Haiwei locomotive broke the monopoly of foreign high-speed rail brake disc and became the only supplier of "Fuxing" brake disc.
Haiwei Locomotive is the only brake disc supplier of Fuxing. The predecessor of the company is Wenshang County Agricultural Machinery repair Factory established in 1952, which has been established for more than 60 years. At the beginning of its establishment, it mainly produces diesel engine cylinder heads for diesel locomotives. In 2000, it began to produce brake discs for subway urban rail vehicles, and became a "qualified supplier of brake discs for high-speed EMU, intercity trains and urban rail transit trains" developed by the Academy of Railway Sciences. In 2017, Haiwei replaced world-class giants such as Kawasaki of Japan, Bombardier of Canada and Siemens of Germany to become the only supplier of brake discs for "Fuxing" EMU. Hai Wei Locomotive is currently valued at 520 million yuan, promising to achieve a net profit of no less than 60 million yuan in 2018, or 13.47 percent of the shares at 8.67 times earnings. The terms signed by both parties stipulate that when Hai Wei Locomotive intends to transfer part or all of its equity interest in Hai Wei Locomotive, Boshen tools shall have the right of preemption under the same conditions; if Boshen tools does not exercise the right of preemption, the same equity held may be sold first under the same conditions. We judge that with the release of Hai Wei Locomotive profits, the company has the possibility of further acquisition of its remaining shares.
2. Following the breakthrough of high-speed rail brake pads, the company's friction material business has been extended to high-speed rail brake discs.
It is estimated that by 2020, the number of EMU trains in China will reach 3800, of which Fuxing will exceed 900s.
Assuming that a train has 16 carriages and each car needs 8 brake discs, the inventory renewal scale of high-speed rail brake discs will reach 480000 by 2020, of which Fuxing brake disc inventory will exceed 110000. China's high-speed railway brake discs are basically monopolized by Kawasaki of Japan, Bombardier of Canada and Siemens of Germany. The company's participation in the brake disc business of Haiwei locomotive has formed a high degree of order coordination and process coordination with its high-speed rail brake pad business, and has become the investment target for A-share and high-speed rail brake pads and brake discs are scarce.
3. The business of high-speed rail brake pads is advancing steadily and will reach a production capacity of 110000 pieces this year.
In 2017, the 300-350km/h high-speed train brake pads independently developed by the company won the formal product certification certificate issued by China Railway Inspection and Certification Center, and won the bid in the bidding procurement of Zhengzhou Railway Bureau; in January 2018, the company's independent research and development of 200-250km/h high-speed train brake pads obtained the CRCC trial certificate, and began loading and operation examination in May 2018. At present, the company has an annual production capacity of 30,000 brake pads for high-speed rail, which is expected to reach 110,000 by the end of the year.
We believe that this equity participation means that the company's brake pad + brake disc business is basically taking shape, and the friction material business will enter a period of rapid development.
Third, profit forecast and investment suggestions
It is estimated that the company's net profit from 2018 to 2020 will be 1.34,2.16 and 307 million yuan respectively, corresponding to 38,24 and 17 times PE and 0.33,0.52 and 0.74 yuan EPS respectively, maintaining a "highly recommended" rating.
IV. Risk hints
The price of brake pads for high-speed rail fell faster than expected; the loading test was lower than expected.