Erdos: Cashmere, Ferrosilicon And New Energy Simultaneously

Ordos company is one of the earliest wool spinning enterprises to develop and produce cashmere products in China. It has a long development time, a large scale of production, a good technical equipment and a comprehensive competitive advantage.

While constantly improving the traditional cashmere business, the company also actively bases itself on the local market and continuously seeks new profit growth points, which is currently highlighted in the development of ferrosilicon business.

The company intervened in the ferrosilicon business by investing 60% stake in Erdos power metallurgy company.

The power metallurgy company is located in the Chai pan well industrial park, Ordos, Inner Mongolia.

Erdos power metallurgy company mainly produces ferrosilicon, silicon manganese, industrial silicon, calcium carbide and other products, the company has coal resources and self provided power plants.

What needs to be explained is that the company has not yet entered the coal chemical industry on a large scale. But considering the huge development prospect of this industry and the abundant coal resources in the Ordos region, the company has planned to vigorously develop the coal chemical industry in recent years.

The company chooses ferrosilicon industry as the direction of development because of its rich related resources.

Ferrosilicon industry is a resource intensive industry.

Ordos City has proved 31 million 960 thousand tons of silica reserves, SiO2 content of 96~99.82%, prospective reserves of 3 million tons; at the same time, Ordos is not far from Ningxia, Ningxia also has a large number of high-grade grade of silica ore.

More importantly, the coal resources in the Ordos region are very abundant. The large shareholder of the company, Ordos group, controls at least 60 billion tons of coal resources.

The future of ferrosilicon industry is promising.

Ferrosilicon products are mainly used in smelting materials such as ferrous metals and nonferrous metals. A large amount of ferrosilicon as additives is needed in the smelting process of metal magnesium. Due to the rapid development of automobile industry in recent years, the market of magnesium metal has a larger space for development.

At present, China's metal magnesium production capacity of about 760 thousand tons, due to the advantages of metal magnesium in the replacement of aluminum alloy is more obvious, at present, China's metal magnesium production is in a rapid growth stage.

At the same time, some large countries of ferrosilicon production are also limited by the constraints of insufficient supply of energy (electricity) or pollution control, or tight supply of raw materials, and price increases. Some enterprises are forced to shut down every year.

Therefore, the trend of the world ferrosilicon industry pfer to China is obvious.

In this case, the price of ferrosilicon is rising. At present, the price of 75 ferrosilicon in Inner Mongolia is 9800 yuan / ton, and the price of 72 ferrosilicon is 9600 yuan / ton.

Active involvement in new energy field

Silicon metal is a primary product for producing silicon solar cells and electronic silicon. The downstream demand is strong and environmental pressure is high.

The power metallurgy company is currently producing by outsourcing by the controlling subsidiary, and the annual management fee is 20 million yuan.

In 2007, the actual output was about 2500 tons, and it is expected to reach 5000 tons of capacity in the next year, of which 2500 solar and electronic grade.

The company plans to make two financing in the future.

The number of stocks issued by private placement is no less than 100 million shares and does not exceed 300 million shares. This issue is intended to raise funds of not more than 3 billion yuan, which are arranged according to importance and order in order to use the following two items.

First, invest 980 million yuan to acquire the shares of the metallurgical company.

Second, invest 2 billion 20 million yuan to Erdos polysilicon capital increase and share expansion.

After the implementation of the project, the registered capital of Ordos polysilicon will increase to 3 billion 130 million yuan, with a direct holding ratio of 64.54% and an indirect shareholding of 14.38%, with a total holding of 78.92%.

In addition, the company plans to issue more than 1 billion 300 million yuan of separable bonds.

The proceeds are mainly used to repay bank loans, which can significantly reduce the company's financial costs.

Profit forecast and investment suggestion

We expect that the total net profit of Erdos Power Metallurgy Company in the past 2008-2009 years is 1 billion 570 million yuan and 2 billion 634 million yuan respectively.

Assuming that the shares of Erdos in the power metallurgy company are still 60% in the next two years, the net profits of the 2008-2009 year companies from the power metallurgy company are 942 million yuan and 1 billion 580 million yuan respectively, and the total earnings of the 1 billion 32 million shares are 0.91 yuan and 1.53 yuan respectively.

Suppose that the net profit obtained by the company in cashmere business in the past 2008-2009 years is 124 million yuan and 155 million yuan respectively, and the earnings per share are 0.12 yuan and 0.15 yuan respectively. The 2008-2009 year EPS of the company is 1.03 yuan and 1.68 yuan respectively.

If the refinancing is taken into account, the total net profit of the company in the 2008-2009 years is 1 billion 66 million yuan and 2 billion 21 million yuan respectively, and the corresponding diluted EPS is 0.77 yuan and 1.46 yuan respectively.

We believe that, taking into account the company's resource advantages and the outbreak of its 2010 performance, even under the current market structure, it still gives the company a higher valuation: it can give the company a valuation of 25.75-33.6 yuan without considering refinancing, and in the case of refinancing, it can give the company 23.1-36.5 yuan valuation.

On the whole, we gave the company a valuation of 25.75 yuan to $3. 3 yuan, and for the first time gave the investment rating of "buying".

Risk factors: the price fluctuation of ferrosilicon, silicon manganese, electricity, coal, blue coal, silica, manganese ore, metal silicon and polycrystalline silicon and other raw materials and finished products; the operation of ferrosilicon project; the refinancing process; the influence of relevant national policies (such as environmental protection) on the operation of the company; and the governance structure needs further optimization.