Confidence Electric: State Grid Acquires Amorphous Alloy Transformer

The company intends to issue additional assets to the State Grid Institute of Electric Power [40.97 -3.37% shares]. The company announced on the evening of November 15 that the State Grid Academy of Electric Power plans to hold 66% of Shanghai Lian Energy, 60% of Fujian Hesheng, 49% of Shandong Aip, 49% of Shanxi Jineng, and Henan Yuyuan. 30% equity, 30% equity interest in Henan Longyuan, 90% equity interest in Pawei Electric, 78.995% equity interest in Chongqing Asia East Asia, and 77.5% equity of Hongyuan Electric subscribe for the company's non-public offering of shares, based on an estimated value of 689 million yuan for the transaction target, and issuance. The number of shares was approximately 60,413,500 shares. The price of this issuance of shares is RMB 11.40 per share.

After the acquisition is completed, the company will become a subsidiary of State Grid. The above transactions are completed, then State Grid Power Institute is expected to hold approximately 24.98% of the company's shares. Xu Jinxin and its concerted person are expected to hold a total of approximately 24.28% of the company's shares, and State Grid will be the company's No. 1 company. Major shareholders, the company will be changed from a private enterprise to an indirect control company of the national grid.

1. Comments:

Amorphous alloy transformer usher in spring. Since the State Grid has not yet extensively invited amorphous alloy transformer products, the company has entered the local grid tendering system through a model of cooperation with local grids and three production enterprises. As a result, the sales volume of amorphous alloy transformers of the company is far below the production capacity. Based on the amount of RMB 46,600 for each 500KV amorphous alloy transformer, the company sold 33,000 amorphous alloy transformers in 2010, which is far below the company’s capacity of 77,000 units. We expect that after the completion of the asset acquisition, State Grid will vigorously promote amorphous alloy transformer products.

The company's output is expected to grow rapidly. As of September 2011, the company's amorphous alloy transformer product capacity was 77,000 units. Chongqing Asia East Asia has a capacity of 20 million KVA transformers, equivalent to 40,000 sets of 500KVA amorphous alloy transformers. In addition, Jiangsu Pavel and Jiangsu Hongyuan all have the transformer production capacity. We expect the company's amorphous alloy transformer capacity will increase significantly after the asset acquisition is completed.

Benefit from Aetna Technology [21.73 2.40% shares report bar] Amorphous alloy strip production, amorphous alloy transformer prices will be competitive. In 2011, Hitachi Metals raised the price of its amorphous strip from 28,000 yuan/ton to 35,000 yuan/ton, resulting in a substantial drop in the company's gross profit margin to 27.35%. Antai technology amorphous alloy strip price is 20,000 yuan / ton, according to each 10KV amorphous alloy transformer using 0.6 tons of amorphous strip calculation, after using Antai technology products, on the basis of maintaining 30% gross profit margin, the company is not The price of the crystal alloy transformer product will drop by 29%, so that its price is not bad compared with the traditional silicon crystal transformer product, and the amorphous alloy transformer product is more competitive.

Subsequent asset injections are still expected. Fuzhou Tianyu Electric Co., Ltd. and Xuji Transformer Co., Ltd., subordinate to the State Grid Corporation of China, are all engaged in the distribution transformer business. Therefore, other subordinate enterprises of the State Grid and the restructured Confidence Electric [13.42 10.00% shares in Bar Research] have competition in the same industry. To this end, the State Grid promises: 1) The State Grid will ensure that Fuzhou Tianyu Electric Co., Ltd. will cease such operations or transfer externally within 3-5 years after the completion of the transaction, and completely eliminate the competition with the trusted electric industry. 2) Under the conditions of compliance with laws and regulations and related management regulations of listed companies, the State Grid will ensure the reorganization and integration between Credit Electric after the completion of the transaction and Xuji Transformer Co., Ltd., and support Shenxin Electric in adopting asset restructuring and equity mergers and acquisitions. In other means, the company purchases XJ Transformer Co., Ltd. and its existing peer-to-peer business, or ensures that XJ Transformer Co., Ltd. carries out business adjustments or transfers such business externally. Therefore, we expect that the company will still have the possibility of asset injection in the follow-up.

State Grid amorphous alloy transformer only platform. The State Grid promised that "after the completion of the reorganization of assets, it will mainly engage in the research and development, production, and sales of distribution transformers with voltage levels of 35kV and below that will become amorphous." The business will stop, and its production capacity will be transferred to the distribution transformer business, which will become amorphous.

2. Earnings forecast and valuation:

Assumptions:

(1) Antai Technology continues to expand production. Aetna Technology has an existing production capacity of 10,000 tons, the second phase of production capacity has been expanded to 40,000 tons, and the third phase of production capacity has been expanded to 100,000 tons. The company will continue to expand its production. Assuming that the third phase of the project will be completed in 2014, it will meet the demand for 166,700 sets of 10KV amorphous alloy transformers in 2014. Assume that the ratio of amorphous alloy transformers to distribution transformers for 2012-2015 is 10%, 15%, 20%, and 25%, respectively, and then stabilize at 25%.

(2) The company continues to expand production. The company's existing capacity of 77,000 units, Chongqing Asia and East Asia production capacity of 40,000 units, Jiangsu Pavel, Jiangsu Hongyuan production capacity have turned into amorphous alloy transformer capacity. From 2012 to 2015, the market share of amorphous alloy transformer products in the company's market was respectively 75%, 80%, 85%, and 90%, and it stabilized at 90%.

(3) The company's tapes gradually changed to Antai's products, benefiting from lower costs, the average price of the company's amorphous alloy transformers dropped to 32,700 yuan/set, and its gross profit margin increased to 30%.

(4) In addition to satisfying its own use, the company's amorphous alloy core products are partially exported and the gross profit rate has been increased to 25%.

(5) The fee rate during the company was slightly reduced.

(6) The tax policy for corporate income tax rate and value-added tax remains unchanged.

(7) The Company issued 60,413,500 additional shares at an issue price of RMB 11.40 per share, and the profit forecast was calculated based on the total share capital of 679,118,500 shares after the issuance. The assets to be purchased will begin consolidation on January 1, 2012.

(8) Do not consider the infusion of other assets such as Xu Ji.

We expect the company's earnings per share for 2011-2013 (after diluting) to be 0.28 yuan, 0.60 yuan, and 1.06 yuan, respectively, and the current stock price corresponds to a 2012 dynamic price-earnings ratio of 20.33 times. Taking into account the company's high growth, we believe that the company's reasonable valuation range of 30-35 times the price-earnings ratio in 2012, corresponding to the stock price of 18.0 0-21.00 yuan. Increase the company's investment rating to "buy."

3. Major investment risks: The private placement cannot be completed on time.