Key points of investment:
Overview of Shouhua Convertible Bonds (123128.SZ):
Grade AA, with a bond balance of $1,379 million, accounting for 99.97% of the total amount issued, with a remaining term of 3.95 years.
The latest closing price is 103.39 yuan, conversion premium rate is 55.72%, pure debt premium rate is 3.46%, and YTM is 2.62%.
Main stock: Shouhua Gas (300483.SZ) Overview:
Shenwan Level 3: Gas industry, mainly engaged in natural gas exploration, extraction and sales, and the horticultural business is being divested. The latest total market value is 3.497 billion yuan. The actual controller is an individual, holding a total of 18.41% of the shares, and the net profit for the most recent period is -91.47%. The current stock price corresponds to PB (MRQ) 1.25x, ranking 16.9 in the last 5 years.
The main points of interest:
1) Debt-biased debt conversion: The absolute price is low, positive YTM, the premium rate of pure debt is also low, and the debt base support is strong.
2) Low credit risk: The financial leverage is low. Excluding the convertible balance, the balance ratio at the end of Q3 was only 26.05%.
Cash flow is abundant, and operating cash flow has been net inflow for 5 consecutive years.
3) Depreciation and amortization dragged down performance: H123 EBITDA was 235 million yuan, a year-on-year decline of 38.80%, but the performance performance was significantly superior to the non-net profit withheld from the mother.
4) The inflection point is here: Mine construction was limited in 2020-22, and gas production declined year by year, dragging down performance. Since this year, the company has continued to promote exploration and development in the Shilou West Block. Newly built gas wells have been put into operation one after another. It is expected that gas production will increase dramatically next year.
Reasonable valuation derivation of convertible bonds
Based on the valuation model of Mountain Securities convertible bonds, assuming that the underlying stock price does not change and combines BSM, binary tree, and MC simulations, we believe that the reasonable valuation of Shouhua convertible bonds is 110-118 yuan, with a market space of about 6-14%.
Risk warning: The macroeconomy falls short of expectations, industry policies are becoming stricter, gas production falls short of expectations, natural gas prices are lower than expected, etc.