Strong downstream demand + the extension is integrated into the superior tool, and the performance growth rate is relatively fast:
In the first half of 2017, the company achieved operating income of 140 million yuan, 52.12% year-on-year, excluding Shangyou Tools, the operating income was 120 million yuan, 29.77% year-on-year; the net profit attributable to the parent was 45.42 million yuan, 28.02% year-on-year, excluding Shangyou Tools, the total net profit was 45.48 million yuan, 28.20% year-on-year.The main reasons for the sharp increase in revenue are: 1. The company has included Shangyou tools in the consolidated statements since March 2017, contributing operating income of 21.25 million yuan; 2. The downstream market demand is strong, the comprehensive competitiveness of the products is obvious, and the market recognition is high.The main reason for the profit growth was driven by revenue growth. The reason why the profit growth was not as good as the revenue growth was that the company merged Shangyou tools under different control in the first half of the year. In the consolidated statement, Shangyou Tools' inventory at the end of February 2017 was measured at fair value and carried forward the cost of sales, resulting in a lower gross profit margin, thereby reducing the profit increase.
The synergy between EST tools and Shangyou tools is obvious, and a comprehensive service provider for a full range of products is built: Shangyou tools' hob, gear cutter, shaver and EST tools' main product broach are currently typical representatives of high-precision and complex gear tools. After EST tools completed the acquisition of Shangyou tools, the product range was gradually improved, which can better provide a full range of product supplies, thereby improving the overall service capabilities.
Domestic import substitution + exploring foreign markets with 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 revenue of the auto parts industry can account for 60-70%.In addition, many of the company's customers include military-industrial companies such as CSIC, Southern Power, and Inner Mongolia First Machine, which demonstrate the quality of the company's products.At the same time, there are not many domestic tool companies that produce modern and efficient tools. According to 2014 data, the domestic consumption of modern and efficient tools in China accounts for about 15%, and there is a lot of room for import substitution.At the same time, the company is also actively exploring overseas markets. In 2016, the company set up a wholly-owned subsidiary in the United States to provide localized after-sales service to North American customers. The subsidiary radiates the entire North American region. North America is the world's second largest automotive market with vast space.
Investment advice:
With the development of the tool industry at home and abroad, the demand for modern high-efficiency tools has gradually increased, but at present, the domestic modern high-efficiency tools are still mainly dependent on imports, and there is huge room for import substitution. EST tools, as the leading enterprise of modern and high-efficiency tools in China, is expected to benefit.And the company is also actively exploring overseas markets.We expect that the EPS of EST tools in 2017, 2018, and 2019 will be 1.10 yuan, 1.43 yuan, and 1.84 yuan, respectively, and the corresponding PE will be 30.2x, 23.1x, and 17.9x, respectively. For the first time, the coverage will be given a “recommended” rating.
Risk warning: business integration risk, downstream demand does not meet expectations risk, gross profit margin decline risk.
