Fangxing Technology: Private placement enhances the company's competitive advantage and gives an "overweight" rating

Shanxi Securities (002500) recently released a research report on Fangxing Technology (600552), saying that the company's net profit increased by 100-120% in 2012. First, it was due to the addition of 40% equity in Zhongheng Company during the year, and Zhongheng became a wholly-owned subsidiary from a holding subsidiary. In 2011, Zhongheng's net profit was 113 million, accounting for 90% of the company's consolidated net profit of 123 million. In 2012, the overall macroeconomic and downstream demand declined, and the price of zircon sand was high in the first three quarters. It is expected that this year's net profit will be lower than that in 2011, but it is still one of the company's main sources of profit; second, the float glass business was divested in 2012, and the first half of 2011 was included, with a low base.

Benefiting from the stabilization and recovery of the macroeconomic and real estate markets in the fourth quarter of last year, the company's two major businesses of ITO conductive film glass and capacitor zirconium began to improve in 2013.

The competitive advantage of the company's capacitor zirconium business is gradually becoming prominent: Zhongheng's fused zirconium production line was put into operation in the second half of 2008. Although it has not been in operation for a long time, it has developed rapidly in recent years. Relying on its own technological advantages, the company's capacitor zirconium has high purity and impurity content, with a purity of more than 99.5%. The market generally has a purity of less than 99.3%. The product advantages are relatively obvious. The company continues to expand its production capacity. In February this year, the annual production of 5,000 tons of capacitor zirconium oxide project was put into production, and the production capacity increased from 10,000 tons/year to 15,000 tons/year, making it one of the companies with the largest capacity of capacitor zirconium in China. The high-purity zirconium oxide in the fixed increase project under construction can reach a purity of more than 99.9%. The downstream applications are in high-end fields such as artificial gems, structural ceramics, and solid fuel cells. The price is 30-40% higher than that of ordinary capacitor zirconium. After the project is put into production, its scale, product structure, and profit level can be greatly improved.

The demand for capacitor zirconium is growing rapidly, and the scope of replacing chemical zirconium is expanding after the product structure is improved. Although chemical zirconium products have high purity and good quality, the production cost per ton is nearly 10,000 yuan higher than that of capacitor zirconium. As capacitor zirconium technology becomes increasingly mature and product purity increases, the field of chemical zirconium substitution is increasing. In 2011, the market size of capacitor zirconium was 70,000 tons, and the average growth rate from 2005 to 2011 was 18%, higher than the 7% growth rate of chemical zirconium. According to the Titanium Zirconium Hafnium Branch of the China Nonferrous Metals Industry Association, by 2015, China's electric fused zirconium market demand will reach more than 100,000 tons, and the market demand will maintain a 10% growth.

ITO conductive film glass product structure upgrade. In 2011, TN/STN accounted for more than 70% of the company's ITO conductive film glass, and only 20% was used for touch screens. The company's 1.3 million pieces (4 lines) of capacitive touch screen ITO glass were put into production in May last year. After the transformation of the old 4 production lines last year, the proportion of capacitive touch screen ITO glass products increased. Its product structure upgrade will improve product competitiveness.

The company's plan for private placement was approved, and the funds raised will not exceed 1 billion yuan. The company's current total assets are 1.04 billion yuan, and the asset-liability ratio is 47.3%. After the private placement is completed, the asset-liability ratio will drop to about 20%, and financial expenses will decrease.

It is estimated that the net profit attributable to the parent company's shareholders in 2012, 2013, and 2014 will be 133 million, 198 million, and 250 million yuan, with growth rates of 109%, 48.5%, and 30.5%, respectively. Assuming that no more than 45 million shares are issued, EPS is 1.14\1.22 (diluted)\1.6 yuan (diluted), and the 2013 PE is 23 times, giving an "overweight" rating.

Institutional source: Shanxi Securities

Kangyuan Pharmaceutical: Reduning high growth, Guizhi market gradually recovers

The company announced its 2012 annual report: During the reporting period, the company achieved operating income of 1.903 billion yuan, a year-on-year increase of 23.77%; operating profit of 243 million yuan, a year-on-year increase of 32.73%; net profit attributable to shareholders of listed companies was 240 million yuan, a year-on-year increase of 31.32%; basic earnings per share was 0.57 yuan, an increase of 29.55% over the same period last year.

Sales growth accelerated, performance exceeded expectations: In 2012, the company's quarterly operating income growth showed an accelerating trend, and the expansion of sales scale led to steady growth in performance. In the fourth quarter, the company achieved operating income of 539 million yuan, an increase of 41.99% over the same period last year, and net profit of 53.6322 million yuan, a year-on-year increase of 128.95%. The company's net profit in the fourth quarter increased significantly, making the full-year performance exceed previous expectations.

Red Toxin continued its high growth, and the market for cinnamon twigs gradually recovered: In terms of products, the company's injection business achieved a total sales revenue of 877 million yuan in 2012, a year-on-year increase of 83.63%. Among them, Red Toxin benefited from the expansion of the basic drug market and antibiotic substitution, and continued its high growth momentum throughout the year, with a total sales of 863 million yuan, a year-on-year increase of 86.96%, which was the main driving factor for the company's performance growth in the current period; capsule preparations achieved operating income of 593 million yuan during the reporting period, a year-on-year decrease of 8.80%. Although the sales of cinnamon twigs fell by 15.78% year-on-year throughout the year, from a single quarter perspective, the downward trend has been curbed, and there are obvious signs of stabilization and recovery; the company's marketing reform focused on promoting terminal digestion has gradually taken effect, and the market digestion data of key products has improved significantly. The sales recovery of old varieties represented by cinnamon twigs in the future is worth looking forward to.

Gross profit margin has increased, and financial conditions are improving: In 2012, the company's overall gross profit margin was 75.17%, an increase of 2.65 percentage points year-on-year. The company's period expense rate was 60.63%, an increase of 2.21 percentage points compared with the same period last year. The increase in expense rate eroded part of the profit; driven by marketing reforms, the company's cash and net operating cash flow increased by 70.65% and 135.19% year-on-year respectively, and the operating financial situation continued to improve.

Rich research and development results, focus on the listing of lactones: In 2012, the company's cumulative research and development expenditure was 204 million yuan, accounting for 10.73% of operating income. It applied for 30 Chinese patents throughout the year and obtained 25 patent authorizations. The company has strong research and development capabilities and will continue to inject new vitality into future development; the new product Ginkgolide ABK has been approved in mid-November 2012. The company actively improves its listing guarantee work. As an upgraded product of the old generation of ginkgo preparations, this product has the potential to become a large variety. After listing and sales, it is expected to become a new driving force for the company's performance growth.

The company's EPS for 2013-2015 are temporarily adjusted to 0.77/1.03/1.33 yuan respectively, and the corresponding dynamic price-earnings ratios are 34, 25 and 19 times respectively; analysts believe that the company has outstanding R&D capabilities and has many exclusive products with great market potential. Retoxin is in a high growth period benefiting from market expansion. Sales of old products are expected to gradually recover with the deepening of marketing reforms. The launch of new products will promote the company's continued healthy development. Therefore, the company's "buy" rating is maintained. (AVIC Securities)

Nanfang Food: Non-public offering is imminent, recommended logic is fulfilled one by one

Guotai Junan released a research report on Nanfang Food (000716) on March 4, saying that on March 2, 2013, Nanfang Food announced that it received the "Approval on the Non-public Offering of Shares by Nanfang Black Sesame Group Co., Ltd." from the China Securities Regulatory Commission on February 28, 2013. The main contents of the approval are as follows:

1. Approval of the company's non-public offering of no more than 67,740,462 new shares.

2. This issuance of shares should be implemented strictly in accordance with the application documents submitted to the China Securities Regulatory Commission.

3. This approval is valid for 6 months from the date of approval of the issuance; 4. From the date of approval of the issuance to the end of this stock issuance, if the company has any major events, it should be reported to the China Securities Regulatory Commission in a timely manner and handled in accordance with relevant regulations.

Analyst's view: We started recommending Southern Food in mid-June 2012 for three reasons: 1. We are optimistic about the willingness and confidence of the major shareholder to strengthen and expand the listed company after the additional issuance; 2. We are optimistic about the profit improvement trend after the company's historical problems are solved, which will directly lead to a substantial increase in performance in 2013; 3. We are optimistic about the future revenue and profit growth of the new sesame products "Love Cup" and "Sesame Dew" acquired from the group company in 2012, which may become the main driving force for its future performance.

At present, the company is moving steadily in the expected direction. We are optimistic about the improvement in the company's initial performance and the growth brought by the expansion of new products in the later period. It is estimated that the company's EPS in 2012-2013 will be 0.14 and 0.50 yuan respectively, with a target price of 15 yuan within one year and an "overweight" rating.

Brand promotion efforts have been greatly increased: The company successfully bid for the 15-second CCTV-1 A-Special Golden Combination Advertisement in the peak season of 2013 with RMB 30.79 million (CCTV-1 will broadcast the company's advertisements after the prime-time theater every night in November and December 2013), and entered the top 100 CCTV advertisements for the first time. Under this brand promotion effort, we continue to be optimistic about the expansion of the company's new products, which is expected to become a growth point for the company's future performance.

The willingness of the major shareholder to strengthen will become clearer: On March 2, 2013, the company disclosed the announcement of the approval of the non-public issuance of shares by the China Securities Regulatory Commission, and the cash issuance to the major shareholder is imminent (450 million yuan will be issued to the controlling shareholder Black Five Group, Mr. Li Hanrong, Mr. Li Hanchao, Mr. Li Yuqi, and Mr. Wei Qingwen, the largest shareholder of Black Five Group), which will not only reduce the company's financial expenses and improve the company's profitability, but also indicate that the willingness of the major shareholder to strengthen the listed company has become clearer.

Profit improvement in 2013 is already expected, and there is huge room for profit growth in the future. We continue to recommend increasing holdings: In terms of performance, the company has clear expectations for profit improvement due to the resolution of historical problems and the reduction of debt ratio after the additional issuance; in terms of new product development, although the company did not meet expectations in 2012, the company has changed its consulting agency (Shang Yang), adjusted the positioning of the Love Cup, and successfully bid for CCTV prime-time advertising. Therefore, the Love Cup business is still worth looking forward to. EPS is expected to be 0.14 and 0.50 yuan in 2012-2013, and the target price within one year is maintained at 15 yuan, with an "overweight" rating.

Institutional source: Guotai Junan

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