Hengfeng Tools: Import substitution + overseas expansion, broad development space (Oriental Fortune Network)

2018-12-26 13:40:28 EST Tools Co., Ltd. Read

The downstream demand is strong and the extension is merged into the superior tool, and the performance growth rate is faster:

In the first half of 2017, the company achieved operating income of 140 million yuan, 52.12% year-on-year. Excluding Shangyou Tools, its operating income was 120 million yuan, up 29.97% year-on-year; net profit attributable to mothers was 45.42 million yuan, 28.02% year-on-year. The total profit was 45.48 million yuan, 28.2% year-on-year. The main reasons for the sharp increase in revenue are as follows: 1. In March 2017, the company will include Shangyou Tools in the consolidated statement, contributing operating income of RMB 21.25 million. 2. The downstream market demand is strong, the comprehensive competitiveness of products is obvious, and the market recognition is high. The main reason for the increase in profit was driven by income growth. The reason why the profit growth was not as good as the income growth was that the company merged with the superior tool under the same control in the first half of the year. In the consolidated statement, the inventory goods of Shangyou Tools at the end of February 2017 were measured at fair value. Resale costs, resulting in lower gross margins, thereby reducing the increase in profits.

The synergy effect between Hengfeng Tools and Shangyou Tools is obvious. The comprehensive service provider of the whole series of products is built: the main product broach of Shangyou's hob, pinion cutter, shaving cutter and Hengfeng tool is the high-precision complex gear cutter. The typical representative, Hengfeng Tools completed the acquisition of Shangyou Tools, the product series gradually improved, can better provide a full range of product supply, and thus improve the overall service capacity.

Domestic import substitution + development of foreign markets, broad prospects:

At present, the company's products are mainly sold to mainland China, accounting for about 93%. Customers are mainly concentrated in the fields of automobiles, wind power, aircraft, precision machinery, etc. It is understood that the income of the auto parts industry can account for 60-70%. In addition, there are many military companies such as CSIC, Southern Power, and Inner Mongolia, which highlight the company's product quality. At the same time, there are not many enterprises producing modern high-efficiency tools in domestic tool companies. According to the 2014 data, the domestic modern high-efficiency tool consumption accounts for about 15% of China's production, and the import substitution space is very large. At the same time, the company is also actively exploring overseas markets. In 2016, the company established a wholly-owned subsidiary in the United States to provide localized after-sales services to North American customers. The subsidiary radiates throughout North America, and North America is the second largest automotive market in the world. .

  Investment Advice:

With the development of the domestic and international tool industry, the demand for modern high-efficiency tools is gradually increasing. However, the domestic modern high-efficiency tools are mainly dependent on imports, and the import substitution space is huge. Hengfeng Tools is expected to benefit as a leading domestic modern high-efficiency tool. And the company is also actively exploring overseas markets. We estimate that the EPS of Hengfeng Tools in 2017, 2018, and 2019 will be 1.10 yuan, 1.43 yuan, and 1.84 yuan, respectively, and the corresponding PEs will be 30.2x, 23.1x, and 17.9x, respectively, and the first coverage will be given a "recommended" rating.

Risk warning: risk of business integration, downstream demand is not up to expected risk, risk of falling gross profit margin.