Gree Electric (000651)
: Upgrade compressor配套 ratio, "Recommend" rating
We believe that after May 31st, the national subsidy for fixed-frequency high-efficiency energy-saving air conditioners will be cancelled, which will slightly narrow the price difference between inverter air conditioners and fixed-frequency ones. In fact, the recent increase in the consumption ratio of inverter air conditioners has exceeded our previous expectations. Currently, Gree Electric's inverter air conditioner sales account for about 30%~40%, which will fully share in the rapid domestic demand growth for inverter air conditioners. In addition, the current proportion of inverters in the company's third-tier market is approximately 10% lower than the 50% in first and second-tier markets. With rising income, the proportion of inverter air conditioners in third and fourth-tier markets will gradually increase.
The company has gained considerable recognition from consumers for its innovation and product quality. In the first quarter, domestic sales volume increased by nearly 30%, domestic sales revenue grew by nearly 50%, and export growth was even better. Combining this with April and May Day holiday sales data, the company is expected to achieve better-than-expected revenue growth in the second quarter, further demonstrating its industry-leading pricing power. Its ability to adjust to cost pressures will be better than in the first quarter.
Commercial air conditioning business growth exceeds 50%. We estimate the company's commercial air conditioning revenue was approximately 4.5 billion yuan in 2010, reaching 7 billion yuan in 2011, a year-on-year increase of 56%. The company's current commercial technology has surpassed some foreign brands. Following the successful bid for the Guangzhou International Commodity Exhibition City order worth hundreds of millions, the company also won the Dujiangyan Bailun Plaza million-yuan order. For the Shenyang, Harbin, Tianjin, Jinan, Fuzhou, and Xi'an railway station bids, the company's products were all successfully selected. Although commercial air conditioning accounts for a small proportion of the company's revenue (about 9% in 2011), its profit margin is higher than home air conditioning. Considering its good compound growth rate, it can independently receive a 30x P/E valuation.
Compressor配套 ratio upgrade. Currently, the company's compressor production capacity is over 20 million units. The four inverter compressor production lines invested in Hefei have reached full production in May, with a capacity of 6 million units. Zhengzhou and Wuhan each have an annual compressor production capacity of 6 million units, which will reach full production in 2012. By then, the company's total compressor production capacity in 2012 will exceed 30 million units. 60% of the company's air conditioner compressors will be supplied internally. Considering the interests of compressor suppliers like Sanyo, 40% of compressors will still be purchased externally, while excess self-produced compressors will be sold externally.
In addition, the company will gradually develop its own brand exports. In 2010, the company exported mainly to the United States with 1.5 million units and Brazil with 0.5 million units under its own brand. A factory has been built in Brazil, and currently plans are underway to build a new production base in the United States.
In the second quarter, as the sales ratio of new products increases, the company is expected to see a good sequential increase in operating profit margin. The commercial air conditioning business will continue to grow rapidly, providing new profit sources for the company. Due to its good growth potential, the company will receive a better valuation. Based on the company's better-than-expected sales performance in April, we appropriately upgraded our earnings forecast. We expect the company's earnings per share for 2011~2013 to be 2.02 yuan (upgraded by 5%), 2.4 yuan, and 2.8 yuan respectively, maintaining the "Recommend" rating.
(Guosen Securities)
Shanghai Elevator (600835)
: Entering a new round of business adjustment cycle, Strongly Recommend
Minsheng Securities estimates that the company's elevator business will maintain a steady growth rate of 20% over the next five years. During the initial stage of economic restructuring, real estate investment will still drive economic growth, and the urbanization process dominated by high-rise buildings will remain strong in terms of elevator demand. The orderly competitive landscape of the elevator industry will not change significantly in the short term, and the company will maintain its second-place position in new elevator sales. At the same time, the low-asset, stable-cash-flow elevator service business will gradually increase from its current 16% basis, reducing the risk of economic cycle fluctuations in the elevator business.
Turning point in printing machinery, pile driver capacity release, divestiture of loss-making businesses, etc., ensure significant growth in 2011 performance. Minsheng Securities believes that the company will begin to profit and enter an upward channel starting this year. Pile drivers releasing capacity will grow by more than 50% alongside railway and urban rail transit investments. Benefiting from the growth in urban rail transit, commercial real estate, and the rapid development of construction machinery, investment returns from frozen air conditioning and hydraulic pneumatic products will continue to grow rapidly. The company will divest its welding materials and plywood businesses this year, reducing losses and achieving substantial land value appreciation gains.
Minsheng Securities believes that the company possesses both value investment and thematic investment attributes. Growth in main operations and investment income is certain, and the divestiture of welding materials and plywood businesses will significantly boost 2011 performance. An increase in elevator maintenance business makes the company possess light-asset characteristics, reducing systemic risks. The company is entering a new round of business adjustment cycle, with vast imagination space and a significant potential increase in return on equity. After comprehensive evaluation, without considering new business investments, based on the 2011 EPS of 0.92 yuan, Minsheng Securities gives the company a 2011 PE of 20x-25x, granting a "Strongly Recommend" rating.
(Minsheng Securities)
Zhongnan Media (601098)
: Huge future development potential, "Buy" rating
China is still at the beginning of the transition to digital publishing, and its market size is immeasurable. The company leads the industry in digital publishing transformation, with enormous future development potential. Currently, the company has formed multiple digital platforms including websites, mobile newspapers, and frame media, with an unshakable monopoly position in Hunan Province. The China Unicom (600050) digital reading base cooperated with the company is about to go online, bringing the company into a conservative estimate of a nearly hundred-billion-yuan mobile reading market. The broad customer base and gross margin exceeding 80% of the mobile reading base are expected to significantly increase company profits, and Unicom's channels will greatly promote the company's digital reading business. As an important strategic platform for digital publishing for both the company and Huawei, the subsidiary co-built by the company and Huawei, Tianwen Digital Media, is operating smoothly. Huawei's influence in global technology and channels will assist the company's transformation and create global competitiveness. We give the company a "Buy" rating, with EPS of 0.46 yuan, 0.56 yuan, and 0.69 yuan for 2011-2013.
(Fangzheng Securities)
Xinye New Technology (002376)
: Target Price 48 Yuan, "Buy" Rating
Investment Logic
As the leading domestic dedicated printer manufacturer, Xinye New Technology faces historical opportunities for explosive growth in different industries at home and abroad. Market strategies are appropriate, comprehensively enhancing marketing capabilities through various combinations such as joint ventures, direct sales, agency, ODM, etc.; continuously increasing R&D investment, maintaining a compound growth rate of around 30%, accounting for about 10% of revenue. The time required from product design, mold opening to small batch sample production is less than two months, with efficiency leading the industry; leadership with lofty aspirations, enterprising spirit, and down-to-earth attitude, leveraging capital markets, continuous management improvements, collaborating with IBM, rebuilding Xinye New Technology.
Participating in global competition, maintaining high-speed growth. Overseas markets are the testbeds for Xinye New Technology products. The company successfully entered the dedicated printer markets in Europe and North America, adopting high-end products through the ODM method to承接capacity; low-end ticket/log printers have cost advantages, replacing competitors' products. The domestic market is the company's main battlefield. In 2010, the company completed strategic layouts in high-speed rail, finance, logistics, and other industries, forming an industrial ecosystem centered on Xinye New Technology. It is estimated that the global dedicated printer market size will reach 33 billion yuan by 2014, and the company will maintain a 40% growth rate over the next three to five years.
"Core" Xinye, conquering the world: focusing on human-machine interaction interfaces, the company's core technologies CIS (Contact Image Sensor) and TPH (Thermal Print Head), deeply researching industry applications, continuously expanding categories and product series, from dedicated printers to check scanners, double-sided ID copiers, banknote recognition components to various self-service devices. Products penetrate into all walks of life, making people's work, travel, and lives more convenient. One could say, wherever there is human-machine interaction, there is Xinye New Technology.
Reenacting the "Intel Inside" development story: firmly grasping core technologies, continuously increasing technological leadership advantages; supporting partners, capturing the market. In summary: strengthening technology, expanding the market, mastering the core, gaining the initiative. Gradually establishing industrial operation thinking, surpassing the limited concepts of products and businesses, utilizing capital markets, laying the foundation for a strategically advantageous position, completing the historical mission of "Xinye New Technology."
Valuation and Investment Recommendations
The company's diluted EPS for 2011-2013 is expected to be 1.04, 1.5, and 2.3 yuan respectively. We give the company a target price of 48 yuan for the next 8-12 months, equivalent to 46x 2011 PE and 32x 2012 PE. We initiate coverage with a "Buy" rating.
Risk Warning
Lack of a strong brand and insufficient support for distribution channels may impact the achievement of the company's strategy.
(Gojian Securities (600109))
Shuangliang Energy Saving (600481)
: High growth can be expected, "Outperform" rating
With the development of China's economy, energy consumption has also grown rapidly; energy conservation and emissions reduction are both policy requirements and internal economic drivers for enterprises.
Energy-saving mechanical equipment business is the company's core competence.
The company leads in lithium bromide absorption chillers technology; Air-cooled condensers project: Completed by the end of 2010, effective in 2011; Heat exchangers: Expanding industry applications.
Chemical business focuses on energy-saving insulation materials, product boom turning upwards.
The company's 4.2 million tons of styrene has fluctuating gross margins; Expandable polystyrene (EPS) is the company's chemical energy-saving product.
Contract energy management is a new highlight for 2011 performance.
Shuangliang Contract Energy Management will integrate existing technologies; The Ministry of Finance and the State Administration of Taxation have issued documents to exempt contract energy management companies from business tax, value-added tax, and corporate income tax; The company's 2010 annual report shows that it has already conducted contract energy management in multiple cities.
Investment Suggestions
We expect that from the second quarter of 2011 onwards, the company's energy-saving machinery business and contract energy management business will make significant progress under the stimulus policies of the Ministry of Finance and the State Administration of Taxation. We see the development prospects of Shuangliang Energy Saving as well as other companies in the energy-saving machinery sector such as Dunan Environment (002011), Hang Boiler (002534), Hai Lu Heavy Industry (002255), Huaguang Shares (600475), Yi Shida (300125), etc., during the 12th Five-Year Plan period.
Given the completion and production of important fundraising projects and the increase in orders for existing projects, along with the upward trend in industry prosperity, we believe that the company's performance low point has passed, and high growth can be expected. Therefore, we give the company an "Outperform" investment rating.
(Shanghai Securities)
Zhongtai Chemical (002092)
: PVC and caustic soda prices continue to rise, "Recommend" rating
Event Description
We conducted research on Zhongtai Chemical, and the main content and our primary views are as follows:
The company currently has 8.7 million tons of PVC production capacity, with an additional 8 million tons of PVC and corresponding caustic soda facilities expected to come online in the second half of 2012;
The company currently has 3.8 million tons of carbide production capacity, with 6 million tons of carbide coming online in the second half of 2012; despite needing to purchase carbide externally, the company has locked in part of the carbide price at around 2,900 yuan/ton through agreements, much lower than the eastern market price;
Due to the power plant load being only 60% in 2010, if it can connect to the grid, the company's power plant can operate at full capacity, lowering electricity costs to 0.18 yuan/kWh;
We estimate that the company's earnings per share for 2011-2013 will be 0.70 (the first half results have already been announced, roughly between 0.29-0.33 yuan, with 0.12 yuan in Q1 and 0.17-0.21 yuan in Q2), 0.80, and 1.51 yuan respectively, corresponding to a current stock price of 13.75 yuan with a P/E ratio of 20, 17, and 9 times respectively; Recommend.
Elasticity Calculation: Based on the company's current 9 million ton capacity, a 100 yuan/ton increase in PVC prices would increase earnings per share by 0.057 yuan (Yingli (000635) elasticity is 0.059 yuan; Erdos (600295) elasticity for carbide is 0.049 yuan).
Stock Price Catalysts: Continued rise in PVC and caustic soda prices; Huatai Company's 2.135 million KW unit connecting to the grid.
Risk Factors: Additional shares have been lifted from restrictions; Uncertainty regarding when self-generated electricity can connect to the grid; Decline in product prices.
(Changjiang Securities (000783))
Zhongchu Shares (600787)
: Target price 14 yuan, "Buy-A" rating
The largest warehousing and logistics enterprise in China with core competitiveness. The company is the largest warehousing and logistics enterprise in China, with complete logistics resources and a modern logistics network, covering a total area of 6.5 million square meters for logistics bases. The extensive logistics network and logistics assets across the country, with low historical costs and high replacement costs, together with the good brand reputation formed over 40 years of operation, constitute the core competitiveness of Zhongchu Shares in the logistics industry.
Upgrading integrated logistics services, innovating business models, expected profit in 2013 to double that of 2010. Against the backdrop of the rapid development of China's logistics industry, the company's logistics network has expanded significantly over the past five years. Through the development of innovative businesses such as warehouse receipt pledge and spot market leasing, the annual compound growth rate of logistics business revenue from 2006 to 2010 reached 35%. We estimate that the company's integrated logistics business profit in 2013 will double compared to 2010, with an annual compound growth rate of about 30% from 2010 to 2013, driven mainly by expanding scale, increasing fees, optimizing structure, and innovating business models.
Traditional warehousing business, expected total logistics base area to reach around 12 million square meters by 2015, increasing by about one fold compared to the end of 2010, with rates also showing a continuous upward trend; warehouse receipt pledge supervision business breaking through with the establishment of micro-loan companies, developing full-process financial logistics services, extending the fee chain; spot trading market business, new projects in Wuxi, Tianjin, Xianyang, Langfang, etc., starting to enter the profit release phase in 2011.
Relying on rich land reserves, industrial logistics real estate will become a new profit growth point. In the past, the company mainly improved land returns through premium transfers to the government and developing high-margin businesses such as spot markets. Since the simple passive transfer of land is not sustainable, the company plans to develop industrial logistics real estate during the 12th Five-Year Plan period, striving to make it a new profit growth point.
Considering land asset revaluation, the company's per-share revaluation value is 15 yuan. Due to historical cost pricing, the company's current land book value is only 550 million yuan, and its true value is not reflected in the balance sheet. Since 2004, a total of 240,000 square meters of land in cities such as Tianjin and Shanghai have been acquired by local governments, with acquisition prices ranging from 3,000 to 26,000 yuan per square meter. Conservatively estimating, the company's existing land revaluation appreciation is 9.8 billion yuan, increasing the per-share net asset value by 10.50 yuan. The company's current per-share book net asset value is 4.48 yuan, considering the land revaluation appreciation, the company's per-share revaluation value is 15 yuan.
Giving a "Buy-A" rating, target price 14 yuan. Without considering the sale of the held 50 million shares of Pacific Ocean (601099) securities and the remaining 150 million yuan in land transfer gains, we estimate the fully diluted EPS for 2011-2013 to be 0.43 yuan, 0.57 yuan, and 0.74 yuan respectively. We expect a significant probability of partially reducing Pacific Ocean securities within the year, potentially exceeding our expectations. If all 50 million shares of Pacific Ocean securities (cost price 1 yuan/share) are sold, it could contribute 375 million yuan in net profit, increasing earnings per share by 0.40 yuan, but the impact on current period profit depends on the actual reduction process. The average PE of the A-share logistics sector in 2012 is 22 times. Considering the company's main business profit growth rate of about 30% over the next three years, we give the company a 2012 PE of 25 times, target price 14 yuan, giving a "Buy-A" rating.
Risk Warning: Significant macroeconomic downturn risk.
(Anxin Securities)
Ruitai Technology (002066)
: Bullish on the company's growth space, "Buy" rating
We recently conducted research on the company, and our basic views on the current operating situation are as follows: 1) The gross margin of fused zirconia-alumina dropped by about 3 percentage points in the first quarter, with limited further downside, possibly bottoming out in the second quarter; 2) Fused alumina benefits from photovoltaic glass kiln construction, entering a stage of volume growth, with two new fused alumina production lines added recently, increasing capacity to 4,000-5,0