[molding technology: auto parts is the harvest period, private hospital is a new direction]
Societe Generale Securities Li program, Nie Qinglian 2014-03-11

   We recently conducted a survey on the company, communicate with the management of the company, the main conclusions are as follows:

   1), company car bumper business after years of production base layout, after 2010 increasingly shaped, so that it becomes an important watershed - company income and performance had changed a little, the beginning of 2010, the rapid growth of income, gross margin continued ascent stage. The next period of time, the new production base construction plan, expected with the company supporting the proportion of luxury car proportion continues to improve, the existing production base gradually mature and capacity utilization continued to increase rate of revenue and profits of the business, the company will continue to grow rapidly;

   2), to the small castings foundry business transformation is expected to usher in the income losses;

   3), a private hospital based on the outstanding foreign hospital support, and its location is also in line with the rich a huge infrastructure environment in South of Jiangsu area, a high probability of success, and has a great expansion of space; in judgment, we think, private company bumper harvest hospital based business is worth looking forward to new business, the valuation of the same the lowest (static PE for small and medium-sized auto parts enterprises minimum), the risk return matching good, give investment holdings.

   A detailed analysis of the following:

   Company introduction: automobile bumper, a professional business, explore the new direction for the private hospital.

   The company is the domestic started earlier, the largest professional manufacturer of automotive bumper. The company in 1988 to become the Shanghai Volkswagen Santana car bumper exclusive fixed-point production factory, starting in 1998 for the Shanghai general Buick century matched bumper, Santana, Fukang has at the same time, Jetta market three main models at the same time supporting, market share was more than 40%. In 2009, company became BMW brilliance, Beijing Benz luxury brand bumper manufacturers. At present the main supporting clients including Shanghai GM, Shanghai Volkswagen, BMW, Hua Chen Benz, Dongfeng Citroen, Beijing Hua Chen cup, Beijing modern, BMW, Mercedes Benz car made the ratio by the company set up to about 90%.

   In 2013 April, the company through the holding subsidiary company Wuxi Italian (holding 51%, group holding 49%) the establishment of the Wuxi Ming Tzu Chi Hospital cardiovascular disease, the location for the hospital cardiovascular and diabetes specialist, the company entered the field of private hospital.

   Two, the bumper business: five production base layout is complete, the harvest period since 2010

   Because the bumper higher transportation cost, enterprises need to build factories in the nearby main host plant, the main production base in 2002 before the company is located in Jiangyin, after being transferred to Shanghai, Wuhan, Shenyang, Yantai and Beijing:

   Shanghai Mingchen: established in 2002, set up in the same year the production equipment was moved from Jiangyin to Shanghai, plant a project completed in 2003 construction, the two phase of the project completed in 2005 construction; in other areas completed production base construction, all customers are Shanghai Mingchen supply, at present the main supply Shanghai GM, Shanghai Volkswagen in Fujian, as well as the Mercedes Benz and Chery, capacity of 750000 sets; 2006

   The company achieved a net profit of 33000000 yuan, then the transfer of production, its net profit was down slightly, especially since Yantai production base, in 2012 2011, its net profit shrank to 0.18 yuan and 15000000 yuan. Until 2013, with a substantial increase in the main customers of Shanghai GM, Shanghai Volkswagen sales, the first half of the company net profit of 16000000 yuan, more than 2012 full year, but the profit rate is still low, only 3.1%.

   Wuhan Mingjie: established in 2003, the first phase of the project (200000 sets of color bumpers, anti friction coating production line) was completed in 2007; the two phase of the project in 2009 basically completed. At present mainly for Dongfeng Citroen and Dongfeng automobile independent brand supply bumper; Wuhan Mingjie due to the construction of an earlier time, production is relatively saturated, the profitability is the strongest of all company production base, the first half of 2013 sales profit rate of 11.3%. In 2011, 2012, the first half of 2013 net profits were 0.20, 0.40, 28000000 yuan.

   Shenyang Minghua: established in 2004, completed in 2006 the first phase of the project, the two phase of the project is expected to be completed in 2014 June. The base mainly for Brilliance Jinbei supply, 2009 Mercedes Benz supply bumper for BMW brilliance and Beijing, in 2011 to become the sole supplier of Mercedes Benz exterior system at home and abroad, and was awarded the outstanding global supplier of BMW. Because of its main customers from the previous Brilliance Jinbei turned to BMW, Mercedes Benz, since 2011 Shenyang China become the main contribution to company profit and profit increment of. In 2011, 2012, the first half of 2013 net profits were 0.34, 0.66 and 51000000 yuan.

   Yantai Yue: established in 2006, 2011, August, Yantai production base to start mass production, production capacity of 450000 sets, the main supporting Shanghai GM Dongyue plant, put into production that year production of about 100000 sets, the year profit. In 2011, 2012, the first half of 2013 net profits were 0.02, 0.12 and 6000000 yuan.

   BAIC molding: established in 2007, a joint venture with BAIC's Beijing Hainachuan automotive parts company, the company only 49% stake, but mainly by the management of the company, mainly for the Beijing Benz, Beijing modern, shares and other customers. A plant in 2010 July started mass production; for the Mercedes Benz matched two factory in 2012 September put into production. In 2011, 2012, the first half of 2013 net profits were 0.04, 0.10 and 8000000 yuan.

   Before 2010, because the company is in production base layout stage, the plasticizing automobile decoration business (bumper and rubbing strips) profit can not, total income and gross profit almost no growth or even a slight decline. After 2010, with the company each production base, the business income of the basic shape, began to increase rapidly with continuous increase of gross margin, with 2009 as the base, the total revenue and gross profit compound growth rate to 2012 were 30% and 45%, respectively 36% and 43% year-on-year growth in the first half of 2013.

   At present, no other company in city newly built production base of the plan (2012, bumper production capacity of 2200000 sets, yield only about 1500000 sets), we expect, as companies supporting the proportion of luxury car proportion continues to improve, the existing production base gradually mature, capacity utilization continued to increase rate, company business income is expected to maintain the bumper at the same time, rapid growth, profitability is expected to continue higher.

   Three, the private hospital: profit still early, explore useful, if successful, to continue to expand the space

   Wuxi Ming Ci cardiovascular hospital located in Wuxi downtown area, function orientation present: cardiovascular disease and diabetes, diagnosis, treatment of inspection features, with high-end health examination, health management as the key point, elderly health care, scientific research, teaching, both in function.

   According to the hospital Preparatory Office of foreign recruitment notice, the hospital's long-term objective is: "through cooperation with domestic and foreign famous medical institutions, in support of the international advanced technology, the construction and development of the health industry group general hospital, has the brand characteristics, built a modern hardware facilities and software quality, with international service the diagnosis and treatment level of consciousness and the domestic first-class, international leader in the international level medical institutions. The responsibility for training management, technical personnel (base), and explore the business model, summarizes the management experience, the creation of the brand image. When conditions are ripe to center city development the more economically developed, run chain of medical and health institutions, health industry to truly become a molding group fifth big industry."

   In the company, hospital management is a new field, there is no basis in this field, however, the advantages are:

   1), use of force: the hospital and the German state of North Rhine Westphalia heart and diabetes center (HDZ), Chinese health promotion foundation and other institutions to establish a strategic partnership, the future will use the international advanced treatment technology of the German state of North Rhine Westphalia heart and diabetes center and advanced management experience, the functional layout and planning guidance, personnel training and expert selection, in order to improve the management level of the company. (according to the National Cardiovascular Disease Center website, the German state of North Rhine Westphalia heart and Diabetes Center Hospital Affiliated to Ruhr University Bochum, in the diagnosis and treatment of heart disease, particularly heart valve operation, heart transplantation, artificial heart implantation with outstanding achievements, is Europe's treatment of heart disease and diabetes, the most sophisticated level of the best facilities of the hospital).

   2), high-end positioning: the company as a private hospital, is expected to be mainly in providing health services for high-end customers, the more developed Wuxi and even the whole economy of South of Jiangsu area, its huge population of wealthy will provide better basic conditions for the.

   The hospital opened in 2014 October is expected to be, even though the hospital is still in the planning phase, the reputation degree takes a long time, the short term is difficult on the performance of the company have a positive contribution, even a certain drag, but if the operation is successful, greatly expand the space will be the future: only by building area, the hospital medical room (housing containing matching) of 60000 square meters, far exceeding the current scale of construction (150 beds) required.

   Four, the casting business: adjust the direction, expected losses

   Company castings business of Jiangyin Deji casting was founded in 2010, is a company with the German Derhake casting Holdings Limited joint venture, the initial location for the production of 2.5 MW level wind power machine parts, more than other large casting products; in 2012, the German company Derhake divestment, low-cost access to its 55% stake in the bank, Deji casting become company wholly subsidiary company.

   Because foreign capital of personnel changes, while the downstream wind power industry boom degree is low, Deji casting business progress is slow, 2012 years, Deji began trial production, the year only 128200 yuan revenue, loss amounted to 22510000 yuan. The first half of 2013, business income is only 600000 yuan, the loss amounted to 14820000 yuan. Become a major drag on for nearly two years the performance of the company are.

   At present, Deji casting is transition to do small castings, production and sales target for 2014 for the completion of 10000 tons of castings (capacity 30000 tons, tons of value 13000 yuan). We know from the field situation, still cannot judge whether we can accomplish the goal of business transformation, will help increase income less, but in 2014 is expected to continue the loss probability.

   Five, profit forecasts and investment rating: bumper harvest period, basic business is private hospital in new business is worth looking forward to, like the lowest valuation, to "overweight" rating

   Company in 2013 earnings per share of 0.71 yuan, we expect in 2015 2014, EPS were 0.80 and 0.97 yuan. Expected 2014 growth is relatively low, mainly because the first half of 2013, the reduction of Jiangnan water to generate investment income 24800000 yuan (2080000 shares, currently holding 16280000 shares), while in 2014 not to consider the reduction factor. According to the March 7th closing price, the corresponding 2013~2015 PE were 17, 15 and 12 times. In the small and medium-sized auto parts enterprises, the valuation of the company (PE, TTM) is the lowest, only higher than large parts enterprises of China automobile domain, Fuyao Glass, Weichai Power and faw.

   At the same time, the company currently holding 6.96% of the Jiangnan Water (601199, shares corresponding to the market value of 260000000 yuan) and 1.1% stake in Bank of Jiangsu (not listed, in 2012 won the dividend income 8030000 yuan, if the 5% dividend yield roughly estimated value 160000000 yuan), the equity value together about the company accounted for the total market value of 3600000000 yuan more than 10%.

   The above judgment, we believe that the company bumper based solid business, private hospital in new business is worth looking forward to, the current valuation is low compared with similar enterprises, the risk return matching well, to "overweight" investment rating.

   Risk tip: six, raw material price fluctuation risk