Incident: On October 18, the company announced that Haiyuan New Materials, a wholly-owned subsidiary, signed a “Strategic Cooperation Framework Agreement” with Zhejiang Seaport Industry and Finance to carry out strategic cooperation in the fields of new materials, new technologies, and new processes.
Comment:
Seaport Group provided capital and industrial resources to develop collaboratively from Zhejiang to the whole country. Seaport Industry Finance is a private equity investment platform owned by Zhejiang Seaport Group. The actual controller is the Zhejiang State-owned Assets Administration Commission. Seaport Finance will establish the “Automobile Lightweight New Materials Industry Fund”, which will mainly invest in Haiyuan New Materials's equity capital increase and other related projects. The first phase of capital is about 2 billion yuan. Haiyuan New Materials has promised to invest part of the capital. The Hangzhou Bay New Area of Ningbo Port and Jiaxing Port, which are part of the Seaport Group, has automobile industrial parks. The “Ningbo Hangzhou Bay New Area Automobile Industry Development Strategy Plan (2018-2025)” shows that NEV production in the new area will reach 500,000 vehicles by 2025. Currently, two major automakers, Volkswagen and Geely in Shanghai, have landed, and the development prospects are broad. The company has maintained good cooperative relationships with OEMs such as Geely for a long time. Through this cooperation, the company is expected to work hand in hand with automakers in the new district to develop Dongfeng and accelerate development with new energy vehicles.
Vehicle and battery manufacturers have abundant customer resources and plenty of on-hand orders. With the advent of the consumer market for new energy vehicles and the tightening of automobile emission policies, it is imperative to reduce the weight of automobiles. According to the energy-saving and new energy vehicle technology roadmap, the weight of vehicles in 2020, 2025, and 2030 will be reduced by 10%, 20%, and 35%, respectively, compared to 2015. The company has now provided batch support to customers such as Ningde Shidai, Yutong Bus, Dongfeng Liuqi, etc., and has also received various orders from Geely Commercial Vehicles, BMW China, and Guoxuan Hi-Tech. In the first half of 2018, the company received orders totaling 1,405 million to 1,758 million yuan, and is expected to start mass production in Q4 this year. The company took the lead in the field of lightweight composites, established strong market and technical barriers, and gradually raised the moat. Rapid growth can be expected in the future.
It has the advantages of the entire composite material industry chain, and downstream applications are extensive and progressing smoothly. Relying on the leading edge of composite equipment, the company has built a complete industrial chain from composite equipment, technology, materials, mold development, product design to product production by integrating domestic and foreign resources, and has a comprehensive leading advantage. In addition to automobile weight reduction, long-term cooperation has been established with China Transportation, China Railway, Vanke, Greenland, etc. in the area of lightweight construction, and is still actively developing other large-scale construction enterprises. Construction of infrastructure projects such as subways is expected to accelerate in the near future, and sales of the company's products in the public construction sector are expected to increase rapidly.
Investment suggestions: The company has the advantages of the entire composite material industry chain and has broad downstream application space, along with the popularity and rapid development of new energy vehicles. EPS is expected to be 0.20 yuan, 0.65 yuan and 0.81 yuan respectively in 2018-2020, with growth rates of 657%, 220.3%, and 23.3% respectively. Maintaining the “Buy-A” rating, the target price for 6 months is 8.45 yuan, which is equivalent to 13 times the dynamic price-earnings ratio in 2019.
Risk warning: Downstream demand fluctuates, and R&D progress is not going well.
