永新股份(002014.CN)

Huangshan Novel:Purchase Assets to Boost Earnings and Reduce Risk

时间:15-11-08 00:00    来源:兴业证券

Company Profile

Huangshan Novel Co., Ltd (the company)manufactures and markets colour printed composite packaging products and vacuum aluminium coated products.

Event

Huangshan Novel Co., Ltd announced it was going to raise CNY 143million through privately offering 9.7million shares to its controlling shareholder. The fund would be spent on 100% stake of Xinli Ink (transliterated, under the same group) which made CNY 132million in operating revenue and CNY 11.14million in net profit in 2014. It promised net profit reached CNY 13.5million in 2015, CNY 15.8million in 2016and CNY 19.1million in 2017.

Comment

Buying a supplier providing half amount of ink consumed by Huangshan Novel will help the company conduct more effective quality control and may increase its earnings as Xinli’s resources (capital, brand, R&D, talent and sales network) being integrated. Although growth rate of Huangshan Novel dropped in the past two year, it had gradually expanded overseas and in lower-tier cities. Major clients also awarded more orders to the company.

Output of packaging industry in China was CNY 1.5trillion in 2014, which represented a CAGR of 17% since 2002(around 5% on global market). Proportion in GDP rose from 1.6% to 2.4% in ten years as well (2004-2014). But falling demand due to economic slowdown suppressed development of packaging companies.

Founded in 1992, Huangshan Novel is a leading player in the game enjoying 5% market share (2.6% in 2002and 3.5% in 2005). Its gross profit margin ranged from 18% and22%. Cheaper raw material and stronger demand of new clients have endorsed its comparatively high profitability.

Products of Xinli Ink are widely applied to food, chemicals, drugs and clothes. The brand “Xin CaiYun” has established good reputation among consumers in Anhui, Jiangsu, Zhejiang, Shandong, Hunan, Hubei and Fujian. Projects to update production capacity may be launched very soon with land allocated by government. Considering Xinli Ink holds CNY 40 million assets (3.49x PB), we reckoned the price of this transaction is reasonable because average PB of its peers was 3.7x by 2014 and 7.7x referring to Q3 data.

Earnings forecast and investment recommendations: We expect Xinli Ink to contribute 7% of Huangshan Novel’s growth of 2016 per the profit commitment which will add CNY 0.04, CNY 0.05 and CNY 0.06 to diluted EPS in 2015, 2016 and 2017 respectively. In addition, the company is very likely to be benefit from integration of SOE’s assets and see efforts previously invested in marketing payoff. We made EPS forecast for the company at CNY 0.59 in 2015, CNY 0.73 in 2016 and CNY 0.81 in 2017, implying 24x/19x/17x PE. Reiterate BUY.

Potential Risks: price of raw material swings, depreciation of newly-acquired capacity that may not be able to fully get activated.