Investment Highlights:
The Company, a leading producer of plastic machine controlsystems, is strategically expanding its business on threedimensions. (i) Vertically, on top of its nearly 50% and still rising sharein the plastic machine control system market, it brings forth a “plasticmachine control system + servo energy-saving system + software”blueprint and is expanding its presence in the servo system as well asinformation systems under the “Internet + plastic machine” model toforge a complete set of integrated plastic machine solutions. (ii)Horizontally, it leverages the expertise and experience in the plasticmachine field to stretch into metal processing, casting fields. (iii) TheCompany has also proactively forayed into emerging industries such asindustrial robotics and new energy. We forecast the Company’s turnoverto grow 5%~25% during 2016.
The plastic machine sector is embracing an upturn. Output value ofthe Chinese plastic machinery industry is expected to rise fromRmb58bn at present to Rmb88bn at the end of the “13th Five-Year Plan”period, including export of Rmb17bn. Supported by initiatives such asthe Made in China 2025 and appeal of the China Plastics MachineryIndustry Association for “developing key fields of the plastic machineryindustry during the ‘13th Five-Year Plan’ period” etc., the Chineseinjection moulding machine market is expected to usher in an upturn.Additionally, recovery of the downstream demand and growing demandfor higher energy efficiency are expected to give an impetus to theplastic machine control and servo systems.
The Company actively forays into the Internet + new energy field intandem with the “smart manufacturing” and Industry 4.0 trends.The Company is continuously tapping into the emerging fields throughR&D. It has developed and launched a plastic machine managementsystem to support development of the “Internet + plastic machine”business, signed a letter of intent on strategic cooperation with DigiwinSoftware (300378) to build a PCS-MES-ERP smart factory; investedRmb150mn in E-Deodar to develop robots (the subsidiary is expected toreach designed capacity in 2019 and produce 2300 robots every year),and acquired a 51% stake in the Italian EEI to squeeze into the newenergy market.
Risks: 1) Stiff competition weighs down the gross margin; 2) actualoperation of projects financed by offering proceeds misses forecast; 3)fluctuation in the downstream injection moulding machine industry leadsto deterioration in the Company’s operating results.
Earnings estimate, valuation and investment rating: We project theCompany’s 2016/17/18E turnover to be Rmb466mn/549mn/733mn, netprofit attributable to shareholders to be Rmb91mn/104mn/137mn, anddiluted 2016/17/18E EPS to be Rmb0.46/0.52/0.68. Its last share price of Rmb26.57 implies 58x/51x/39x2016/17/18E PER. Referring to valuation of comparables such as Estun Automation (002747), WuhanHuazhong Numerical Control Systems (300161) etc. (97x/74x/59x 2016/17/18E PE on average) as wellas development prospect of the Company’s robotics business, we value the Company at Rmb29.9 (65x2016E PE) and initiate coverage with an OVERWEIGHT rating.
