summary
Huaxiang shares in this period of debt to raise funds of 800 million yuan, after deducting the issuance costs will be used for machining expansion and upgrading and component industry chain extension projects, intelligent upgrading of casting production lines and R & D capabilities improvement projects, supplementary working capital projects.
Compressor parts faucet. The company mainly produces cast iron parts, cast iron production capacity of 302,700 tons, domestic market share of less than 1%, upstream for pig iron & scrap, this year the company acquired Jinyuan Industry, extended upstream, contributing 15% of revenue; parts and components products downstream mainly cover compressors (50%), automobiles (15%), construction machinery (17%), of which construction machinery parts are mainly exported overseas, in recent years affected by the epidemic The proportion gradually declined. Profitability, compressors and auto parts for ductile iron, higher precision, gross profit margin can reach 25%, while construction machinery parts for gray iron castings, gross profit margin of less than 20%, in recent years the proportion of construction machinery parts declined, the comprehensive gross profit margin gradually increased, while with the decline in expense rate, the company's net profit margin increased year by year, driving ROE to rise to more than 15% year by year. In terms of operation, the company's various business customers have a high concentration and a relatively weak status, resulting in a relatively high scale of receivables, but in recent years, the proportion of total assets has gradually declined, and the company's asset-light machining capacity has grown faster, driving the company's turnover to accelerate, and the overall operation is good.
In the future, the company will mainly expand its capacity for the machining of asset-light compressors & automotive parts. The downstream of the foundry industry is dominated by manufacturing and relatively scattered, and in recent years, the growth rate has shown cyclical characteristics, the compound growth rate is less than 5%, and the main downstream of the company's products is home appliances and automobiles, and the demand growth is relatively stable. The company has cooperated with the leading enterprises Midea and Gree in the field of home appliances for more than 10 years, and the proportion of compressor parts supply has reached more than 20%, and it has also maintained close cooperation with customers in other fields. At the same time, the company actively expands the upstream and downstream of the industrial chain, the upstream acquisition of raw material enterprises (pig iron annual production capacity of 330,000 tons) to smooth the impact of raw material price fluctuations, on the basis of maintaining the existing casting capacity, and actively increase the production capacity of the downstream machining link, after the current debt transfer project is put into production, the production capacity of machined products will increase by nearly 50% compared with the present, and mainly based on high-margin compressors and auto parts products, further improving the company's profitability and operational efficiency.
Valuation is at a relatively low level since listing, stock price elasticity is acceptable, and institutional positions are low. From the valuation point of view, the company's latest closing price corresponding to PE (TTM) is 16X, the valuation is at a relatively low level since the listing, A-share comparable targets of Baida Seiko and Liancheng Precision PE (TTM) are 20.2X/25.8X respectively. The company's current A stock market value is 6 billion yuan, the stock price elasticity is good, there are few holding institutions, and the institutional attention is low.
The parity is high and the debt floor protection is average. The terms of Huaxiang's bond transfer rate are set higher than average, and the downward clauses (20/30, 80%) of the additional clauses are more stringent. Based on the closing price of the corresponding company's listing announcement date, the bond parity is 107.24 yuan, which is better for parity protection; under the assumption of this article, the value of pure bonds is 82.99 yuan, YTM is 3.29%, and the debt floor protection is general.
The expected listing price is more than 130 yuan. The bond transfer rating AA-, the listing announcement date parity of 107.24 yuan, with reference to the comparable targets of Liancheng (price 126.3, premium rate of 20.86%), Baida (price 129.8, premium rate of 17.14%), it is expected that the first day of the transfer of bonds on the first day of the transfer of shares premium rate between 20% and 25%, the listing price of more than 130 yuan, if the listing price is low, you can choose the opportunity to configure.
Risk warning: capacity digestion risk; receivables recovery risk;
body
Huaxiang Convertible Bond will be listed on the Shanghai Stock Exchange on 20 January 2022.
First, the analysis of the terms of convertible bonds
The company's convertible bond issuance scale in this period is 800 million yuan, and the issuance period is 6 years. The initial transfer price is 12.99 yuan, which can be converted into 61.5858 million A shares of Huaxiang shares based on the initial transfer price. The dilution rate of the total share capital of the company's A shares is 14.12%, and the dilution rate of the outstanding shares (non-restricted sale) is 40.03%, which is on the high side. The conversion period runs from 28 June 2022 to the maturity date of the convertible bonds (21 December 2027).
In terms of interest rate terms, the 6-year coupon rate of convertible bonds is 0.4%, 0.6%, 1.0%, 1.5%, 2.5% and 3.0%, respectively, which is slightly higher than the average coupon rate of recently issued convertible bonds; the redemption price at maturity is 115 yuan, which is higher than the market average.
In terms of credit rating, CSI Pengyuan gives AA- and AA- ratings to entities and debts respectively. In terms of credit enhancement, the convertible bonds are not secured.
In terms of the additional terms of the transfer of bonds, the amendment clause is more stringent, 1) the amendment clause of the transfer price (20/30, 80%); 2) the conditional redemption clause is (15/30, 130%); 3) the resale clause (30,70%).
On the whole, the company's interest rate on this offering is higher than the industry average, and the additional terms are decent. The closing price on the date of the company's listing announcement was 13.93 yuan, and the corresponding parity price was 107.24 yuan. The Huaxiang convertible bond issued this time has a rating of AA-, the maturity is 6 years, the 6-year AA-grade Medium Bond YTM of January 17 is 6.6152%, the YTM taken in this article is 6.62%, and the value of the pure bond is estimated to be 82.99 yuan, and the bond bottom protection is general; the yield to maturity is 3.29%, which is higher than the yield of the treasury bond of the same maturity.
Second, the fundamentals of the stock
Private enterprises with a pledge ratio that is not low. As of the disclosure date of the prospectus, wang chunxiang, the actual controller of the company, and his son Wang Yuan, and its queen Jing, jointly controlled 62.17% of the company's shares through Huaxiang Industry, and together were the actual controllers of the company, of which Wang Chunxiang served as the chairman of the company and Wang Yuan served as the general manager of the company. In terms of pledge, according to zhongdeng disclosure, the controlling shareholder Huaxiang Industry pledged a total of 23.89% of the company's equity, accounting for 38.43% of the equity held by it, and the pledge ratio was not low.
The company's main products are all kinds of cast iron parts, according to the application of the downstream can be divided into white goods, construction machinery and automobile manufacturing and other industries; upstream for pig iron and scrap and other raw materials. In April 2021, Jinyuan Industry was acquired, and pig iron and renewable resource casting were added to achieve a strategic layout for the upstream.
In the first half of 2021, the company achieved operating income of 1.483 billion, of which compressor parts were 729 million, accounting for 49.13%, air conditioning compressor parts revenue was 553 million, accounting for 37.29%, refrigerator compressor parts were 176 million, accounting for 11.84%; construction machinery parts were 259 million, accounting for 17.46%; auto parts were 227 million, accounting for 15.33%; due to the acquisition of Jinyuan Industry, the revenue of new pig iron and renewable resources business was 212 million. Accounting for 14.30%. From a regional point of view, in the first half of the year, overseas revenue was 230 million, accounting for 15.51%, and the proportion of the company's overseas revenue declined in recent years, mainly due to the seriousness of the overseas epidemic, the reduction in related customer starts, and the decline in demand for export orders. Due to the concentration of customers in the construction machinery parts business overseas, the proportion of revenue in the company's construction machinery sector has also declined due to the epidemic.
Gross margin is increasing year by year. The company's main raw materials include pig iron, scrap, ferrosilicon, etc., product pricing mainly adopts the first pricing and price linkage method, so the gross profit margin level of each business is relatively stable. Among them, construction machinery is mainly gray iron castings, technical difficulty is relatively low, so the gross profit margin is also low, and compressors and auto parts are ball mill cast iron, the performance is better than gray iron castings, product added value is higher, the gross profit margin is relatively higher, and in the past few years, with the decline in the proportion of low gross profit construction machinery parts, the company's gross profit margin has increased year by year. The consolidated gross profit margin in the first half of 2021 decreased slightly, mainly due to the merger of the acquired Jinyuan Industry in the first half of the year, and its pig iron and renewable resources business revenue accounted for 14.30%, but the gross profit margin level was only 2.80%. Through the strategic layout of upstream pig iron, the sensitivity of gross profit margin to raw material prices has been reduced to a certain extent.
During the period, the expense ratio showed a downward trend. Over the past few years, as the company has continued to promote lean improvement, quality and efficiency improvement, and a series of supportive policies provided by the state during the COVID-19 epidemic, the expense ratio has decreased significantly during the period. The sales expense ratio decreased by 4.12 pct in 2020 due to the reclassification of freight; the management expense ratio and the research and development expense ratio were relatively stable, and the company's expense control was better overall. The company's asset-liability ratio showed a downward trend, the scale of interest-bearing liabilities was small, and the financial expense ratio was low.
Industry reasons lead to a high concentration of customers and a large scale of accounts receivable. 40% of the company's products are air conditioning compressor parts, and compressor parts are mainly sold in the market, while the air conditioning industry CR2 (Gree + Midea) is nearly 60%, so the company's compressor parts customers CR3 more than 70%. Construction machinery parts are mainly export-oriented, customers include Toyota Group, Terex and other world-renowned construction machinery companies, the company's customers in this field CR5 more than 60%, of which the largest customer is Toyota Group, accounting for 30% of its construction machinery parts revenue. Auto parts customers are mainly TIER1, including Continental Group, Huayu Automobile, etc., the company's customers in this field CR5 is close to 80%, of which the largest customer is HUAYU Automobile, accounting for 20% of its auto parts product revenue.
Overall, the company is in a weak position relative to downstream customers, resulting in a large scale of accounts receivable, but in recent years, with the expansion of the company, accounts receivable have declined in total assets.
Cash flow is average. In 2018, the company's relatively high net cash was mainly due to the production of large-scale production lines such as auto parts special lines and construction machinery automation molding lines, the increase in the depreciation amount of fixed assets diluted net profit for the current period, and the increase in the existing bill stickers in the current year. Overall, the company's net present ratio is less than 100%, and cash flow is average.
The domestic foundry industry has entered cyclical fluctuations at present, and the overall pattern is scattered. According to data from the China Foundry Association, the output of castings in the mainland increased from 41.5 million tons in 2011 to 51.95 million tons in 2020, with a compound growth rate of no more than 5%, and its downstream is oriented to the automobile (30%), construction machinery and other manufacturing industries, and the demand has shown cyclical fluctuations in recent years. As far as the industry pattern is concerned, due to the dispersion of downstream and the characteristics of customized products, there are a large number of small foundries in the mainland, and the competition pattern is very dispersed, and the company's cast iron production capacity accounts for less than 1% in China.
The company's proportion of major downstream customers is not low, and the cooperation is close. According to the rating report data, the company's supply share in Gree is about 30%, the supply share in the United States is about 20%, the company has cooperated with the main customers Gree Electric Appliances and Midea Group since its inception, the cooperation period is more than 10 years, and the two sides have maintained a close and stable cooperative relationship for a long time. In addition, the company has close cooperation with major customers in various fields, from pre-product development to post-production feedback have close ties, and the cooperation is relatively stable.
In the future, the company will mainly expand its relatively asset-light machining capacity. In the first half of 2021, the company's cast iron production capacity was 302,700 tons, and the company's cast iron production capacity has increased by 30% since 2018, while the machining capacity has increased by 59% since 2018, and the growth rate has significantly exceeded that of cast iron. The company's 2020 IPO project and the current period of bond transfer projects, are mainly machining projects, the current period of bond transfer investment projects in the "machining expansion and upgrading and component industry chain extension project" after completion will add 107.9 million pieces of compressor parts production capacity, 3.09 million pieces of auto parts production capacity, then the company's machining capacity will exceed 350 million pieces, the proportion of rough parts export will be further reduced, profitability will be further improved.
Profitability continues to increase. From 2016 to 2020, the company's net profit attributable to the mother and ROE increased year by year, and the company's net profit attributable to the mother in the first three quarters of 2021 was 262 million yuan, an increase of 78.10% year-on-year. With the further release of the company's future machining capacity, the level of profitability is expected to be further improved.
3. Analysis of bond-to-bond fundraising projects
The company's current period of debt transfer funds of 800 million yuan, after deducting the issuance costs, will be used for machining expansion and upgrading and component industry chain extension projects, intelligent upgrading of casting production lines and R & D capabilities improvement projects, supplementary working capital projects.
Machining expansion and upgrading and component industry chain extension projects. The project is planned to be implemented by means of a new production plant, including the expansion of production lines such as compressor machining and automobile machining, with a construction period of 3 years. After the completion of the project, it is expected that the company will increase the capacity of 107.09 million compressor parts and 3.09 million auto parts per year, of which the compressor parts will reach 30% in the first year, 60% in the second year, 90% in the third year, and full production in the fourth year, and the auto parts will start to be put into production in the second year by 50%, the third year with 75%, and the fourth year with full production.
Intelligent upgrading of casting production lines and improvement of R&D capabilities. The project intends to introduce intelligent systems such as molten iron intelligent analysis system, sand type intelligent analysis system, intelligent casting management system, casting appearance inspection system and other intelligent systems in the existing production line through the purchase of collectors, analysis software and other equipment, and conduct research and development in the direction of casting process research and development upgrade, grind-free technology development, database optimization and upgrading, etc., to meet the needs of downstream application fields for high-quality parts.
Special Note:
This Official Account is not a platform for publishing the research reports of China Merchants Securities Co., Ltd. (hereinafter referred to as "China Merchants Securities"). This Official Account only forwards some of the views of the research reports published by China Merchants Securities, and if the Subscriber uses the information contained in this Official Account, it may be ambiguous in its understanding of the key assumptions, ratings, target prices, etc. in the information due to lack of understanding of the complete report or lack of relevant interpretation.
The information and opinions contained in this official account do not constitute bids or levies for the purchase and sale of securities or financial instruments, and the analysis and judgment of ratings, target prices, valuations, profit forecasts, etc. do not constitute investment advice on the specific price, specific time point and specific market performance of specific securities or financial instruments. Such information and opinions do not constitute targeted and guiding specific investment operation opinions for any person at any time, and subscribers shall evaluate the information and opinions in this public account, make investment decisions independently according to their own situation and bear their own investment risks.
CMS makes no warranties, express or implied, as to the accuracy, reliability, timeliness and completeness of the information contained in this official account. CMS does not assume any form of liability for any consequences arising from the basis or use of the information contained in this official account.
The content contained in this official account is only for the reference of professional investors among the customers of China Merchants Securities shares, and any other readers should assess the appropriateness of receiving the relevant content before subscribing to this public account, and China Merchants Securities will not regard the relevant personnel as professional investor customers due to the act of subscribing to this public account or receiving and reading the information contained in this public account.
General Statement:
This public account is only to forward some of the views of the report published by China Merchants Securities, and the profit forecast, target price, rating, valuation and other views contained in it are based on a series of assumptions and prerequisites, and subscribers can only form a more comprehensive understanding of the relevant views on the basis of understanding all the information in the relevant report. For a full view, please refer to the full report contained on the China Merchants Securities website (http://www.cmschina.com/yf.html).
The information contained in this official account is subject to delayed forwarding compared with the report officially released by China Merchants Securities, and may no longer be accurate or invalid due to changes in the situation or other factors after the date of release of the report. The opinions, assessments and projections contained in this information are solely opinions and judgments as at the date of the report. Such opinions, assessments and forecasts are subject to change at any time without notice.
The price movements of securities or financial instruments covered in this Official Account may be affected by various factors and past performance should not be used as an indication or guarantee of future performance. At different times, CMS may issue research reports that are inconsistent with the opinions, assessments and forecasts contained in this information. CmS Securities' salespeople, trading staff and other professionals may, based on different assumptions and standards, use different analytical methods to make market comments or trading opinions that are inconsistent with the opinions in this material.
The copyright of this official account and its push content is owned by China Merchants Securities, and China Merchants Securities reserves all legal rights to this official account and its push content. Without the prior written permission of China Merchants Securities, no institution or individual shall reproduce, copy, publish, reprint and cite in any form, otherwise all adverse consequences and legal liabilities caused by this shall be borne by the person who republishes, copies, publishes, reprints and cites them without permission.