Institution: Northeast Securities

Stock: Tongcheng Lixing (002243)

Highlights:

Products have strong competitiveness and high recognition. The company's main hose, blow molding and injection molding and filling business, mainly covering the field of cosmetics packaging. At present, it basically covers first-line cosmetics brands, and will gradually cover second-line brands as well as food and health products in the future. The company will grow worry-free in the medium and long term.

Comments:

At present, the company has become the main supplier of many first-line cosmetics brands. It is expected that the company's accumulated experience and brand effect among first-line brand customers will enhance the bargaining power of cooperation with second-line brands, and there is room for further enhancement of profitability.

Strengthen the cost control, and the profit will gradually recover. The company's gross profit margin declined recently due to the sharp rise in labor costs. Gross profit margin fell 3.2 percentage points to 21% in the first half of 2012, and increased slightly to 21.6% in the third quarter. At present, the company has strengthened expense control and taken measures to cope with the rise in labor costs, and it is expected that the future profit will gradually recover.

Set up a joint venture company to complete the R&D layout. It is believed that the improvement of internal efficiency of the company is mainly through the research and development of molds. The company acquired Beijing Xintong at the end of 2010, and set up Lidefu, Liqi and Meihong in 2011, which are engaged in molds, aluminum-plastic film, blow molding molds, two-dimensional code labels and RFID businesses, and the research and development capability is further enhanced and the packaging services are further expanded.

Fund-raising project lays the foundation for medium and long term growth. The company intends to raise no more than 720 million yuan through non-public offering of shares at a price of no less than 5.74 yuan, which will be used for Guangzhou Liying technological transformation, Suzhou project construction, purchase of factories, Tongsheng Lixing technological transformation and technology center upgrading projects. It is expected that the project will be fully completed and the annual production of 312.5 million hoses will be added, and the production capacity of blow molding will be 40 million. Injection molding production capacity of 778 million, filling production capacity of 444.7 million.

Valuation:

Expected 2012-2014 EPS of the company is 0.29 yuan and 0.45 yuan and 0.62 yuan (does not consider the total diluted share capital of refinancing), the corresponding dynamic PE is 22 times and 14 times and 10 times, Northeast Securities temporarily gave the "cautious recommendation" investment rating.

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