China Haiphong (600764)

1. event

China Haiphong recently issued an announcement that when the stock price triggers the fixed price adjustment mechanism on November 27, 2018, in order to ensure the interests of listed companies and shareholders, no price adjustment will be made.

2. Our analysis and judgment

(1) Inject the assets of the institute to achieve full coverage of the underwater information system

On September 15, 2018, the company issued an announcement that it intends to issue 234 million shares to 8 units including China Shipbuilding Industry Corporation and 715 Institute at 25.08 yuan per share and pay 800 million yuan in cash to purchase Haisheng Technology, Liaohai Equipment, etc. Equity of 6 companies (valued at RMB 6.665 billion), and supporting financing of RMB 3.2 billion. The plan was approved by the SASAC in January this year. After the injection is completed, the company will achieve full coverage of all professional fields of underwater information systems and become the leading professional underwater acoustic company in China.

(2) Maintain both fixed price increase and shareholding increase, demonstrating confidence in development

The company’s board of directors decided not to adjust the fixed increase price, which avoided the dilution of earnings per share, invisibly increased the company’s earnings per share by 5.2%, guaranteed the interests of shareholders of listed companies, and further improved the quality of the company. . From December 26, 2018 to January 18, 2019, the company’s major shareholder, China Shipbuilding Industry Corporation, has increased its holdings by 188 million yuan, accounting for 2% of the company’s total share capital, showing that China Shipbuilding Industry Corporation is full of the company’s future development prospects. confidence.

(3) Anti-submarine capability is highly valued, and the demand for underwater acoustic equipment is increasing

my country's mainland coastline is long and long. While the existence of the "*-island chain" creates obstacles for my country's naval warships, it also facilitates the concealed entry of enemy submarines into my country's territorial waters. Therefore, the construction of anti-submarine capabilities is an important part of the construction of naval equipment. In recent years, my country’s multi-type surface warships have been equipped with towed sonar and developed a new type of anti-submarine patrol aircraft to enhance naval anti-submarine capabilities, but there is still a large gap in the number of related equipment compared with foreign forces. Therefore, The development space of underwater acoustic equipment is very broad. As the domestic professional leader in underwater acoustics, the company can expect endogenous growth.

(4) The later injection of electronic assets is more worth looking forward to

China Shipbuilding Industry Corporation has positioned China Haiphong as a ship electronic information asset platform, which mainly includes underwater underwater acoustic assets and water electronic assets. The injection of underwater acoustic assets is about to be completed. According to the company's positioning, future electronic assets related to naval combat command, radar, and communications are also expected to be injected. The electronic assets of China Shipbuilding Industry Corporation is the core equipment provider of the ship combat command system, covering the main part of the "China Aegis" system, and is in a leading position in the industry. If this part of the assets can be injected, it will further enhance the company's value and make China Haiphong a leading ship electronic information company.

3. Investment Advice

Assuming that this restructuring plan is completed within this year, and considering the dilution of equity by allocation financing, the company's pro forma net profit attributable to the parent is expected to be 618 million yuan, 727 million yuan and 824 million yuan from 2019 to 2021, and the pro forma EPS will be 0.87 yuan, 1.03 yuan and 1.16 yuan. The current stock price corresponds to the PE of 28x, 24x and 21x respectively, **covered and given a "recommended" rating.

Risk Warning: The risk of delays in military orders and the market for civilian products falling short of expectations.