Opportunities For Equipment Manufacturing Industry In Northeast China

The State Council approved the revitalization plan for Northeast China: the principle is agreed with the plan for revitalization of Northeast China (hereinafter referred to as "planning").

The plan states:

We should speed up economic restructuring and growth mode pformation, strengthen resource conservation and environmental protection, strive to improve people's livelihood and promote social harmony, and strive to build northeast China into an important economic growth area with a relatively high level of economic development, an internationally competitive manufacturing base, a new national raw material and energy guarantee base, an important national commodity grain and agricultural and animal husbandry production base, an important national technological R & D and innovation base, and an important guarantee area for national ecological security, so as to achieve sound and rapid economic and social development in Northeast China.

Commentary:

According to the approved contents of the plan, we must build the northeast region into an internationally competitive equipment manufacturing base. We believe that the equipment manufacturing industry will benefit from the implementation of the plan.

The planning includes: Liaoning, Jilin, Heilongjiang and the Inner Mongolia Autonomous Region Hulun Buir, Xingan Meng, Tongliao, Chifeng and Xilinguole Meng (East Mongolia). There are 18 manufacturing equipment listed companies in the area, which involve many industries including electrical equipment, automobiles and auto parts, machine tools, aerospace, military and other special machinery.

With the support of policies, the competitiveness of a number of listed companies will be significantly improved through technological progress, mergers and acquisitions, which deserves our attention.

It is suggested that the Shenyang machine tool (000410) of the machine tool industry should be focused on; Hafei shares in the aerospace industry (600038); Rongxin stock in the electrical equipment industry (002123), ha air conditioning (600202); FAW sedan in the automotive industry (000800).

1. machine tools

We believe that the machine tool industry will benefit significantly from the plan.

The machinery industry is of special significance to Northeast China. We believe that the Northeast Revitalization policy will be supported from the following aspects: 1) preferential tax policies, including preferential tax rebates and preferential regional income tax, and the Northeast machinery industry will enjoy double benefits from industry and region; 2) capital support, such as the National Development Bank and industrial support fund, will be a timely help for the Northeast machinery enterprises lacking financial support; 3) the industrial supporting base of the state led investment, such as the functional components industrial park of the machine tool industry, so as to promote the completion of the industrial chain; 4) the support for independent innovation will promote the technological progress of the machinery industry; 5) the support for industry integration will promote the merger and reorganization of the Northeast machinery industry.

It is recommended to focus on Shenyang machine tool (000410): the machine tool industry has long been optimistic, the demand for domestic machine tools is strong, and the import substitution space is huge. We expect that the revenue growth of China's machine tool industry will be more than 20% during the "11th Five-Year" period, and the revenue growth of CNC machine tools will be over 30%, and the growth of the dominant enterprises in the industry will be higher than the average level of the industry.

Shenyang machine tool is the leading enterprise of gold cutting machine tool in China. It will benefit from the policy of revitalizing the northeast.

We expect the company's EPS in 07, 08 and 09 years to be 0.45 yuan, 0.73 yuan and 1.01 yuan respectively.

Considering the issuance of additional projects, assuming that the company's issuance is completed in the second half of 07 years, the issuance of 60 million shares is expected to be 07 yuan, 08 year and 09 year EPS, respectively, 0.41 yuan, 0.66 yuan and 1.59 yuan respectively, so as to maintain the "overweight" rating.

2, aerospace industry

Aerospace Military Equipment Manufacturing continues to benefit from national policy support.

As a key supporting industry in the country, the military industry has enjoyed national preferential policies in terms of investment and taxation.

Especially since the end of 07 in February, the national military industry authorities have promulgated 5 major policies to promote the restructuring of military enterprises, encouraging competent military enterprises to enter the capital market through restructuring and reorganization, and the determination to make bigger and stronger military enterprises can be seen.

The plan approved by the State Council will undoubtedly greatly benefit the equipment manufacturing industry. For the major military enterprises in Northeast China, Harbin aircraft industry group, the prospects for development will be even more promising.

The proposal focuses on Hafei shares (600038): the company's profitability has been steadily improved.

The company is a listed company directly controlled by Hafei group and is the main production base for military and civilian helicopters in China.

The company's main products are Z9 series helicopters, and the order has been arranged for 2010. Under the condition that the gross profit margin of the products is steadily rising, Z9 will be the main source of profits for the company. At the same time, the company actively enters the international subcontracting business of the aircraft parts and invested 30 million yuan to participate in the formation of Tianjin Zhongtian Aviation Industry Investment Co., Ltd., which is mainly engaged in the assembly business of the Airbus A320 aircraft.

At present, the company's profitability is gradually improving. Considering the strong support of the national policy for the industry, the steady growth of the company's military orders and the positive development of the company in the international subcontracting business, we are optimistic about the development of the company in the next few years.

Forecast Ltd 07-09 earnings per share were 0.56 yuan, 0.68 yuan, 0.81 yuan, to maintain the company's "overweight" rating.

3, automobile

The auto industry has benefited from the policy of revitalizing the northeast.

The automobile industry also has a special significance for Northeast China.

FAW, located in Changchun, is the birthplace of China's auto industry.

Audi is the first luxury car brand in China. It still occupies about 50% of the market share of luxury cars.

Brilliance is China's first overseas listed company. It was listed on the NYSE in October 1992.

BMW, the first luxury car manufacturer in China, also opted for Shenyang.

The Northeast revitalization plan will further develop the Northeast Auto industry.

1) the policy of independent innovation is running for Northeast Auto Research and development.

At present, FAW, Hafei, Huachen and other enterprises have a certain foundation for independent research and development. Under the impetus of policies, enterprises can continue to increase their R & D investment.

2)

Planning instructions "should break through the boundaries of administrative divisions, promote rational allocation of resources and rational flow of production factors.

"SAIC and NAC are now exploring the possibility of full cooperation. They are concerned about the possibility of assets integration, merger and reorganization of listed companies such as Shuguang shares (600303), ST Jinbei (600609) and so on.

FAW Group is expected to emerge as a whole.

It is recommended to focus on FAW car (000800): the level of independent research and development + the overall listing is expected.

1) in July 15th, FAW Group announced that it invested 13 billion in 8 years for independent research and development, and built and improved a series of car platforms. These platforms will involve 50 autonomous cars including AOO, AO, A-A, B, C and D.

FAW car (000800) is the most important platform for independent research and development of the group. The company's independent research and development capability is expected to have a qualitative leap in the next few years. After a few years, the sales of independent research and development products will grow rapidly.

2) in the current industrial policy orientation and capital market environment, FAW Group's overall listing is necessary. Listing of A-share market with rising valuation level is a rational choice. It is also a rational choice of FAW Group's existing management based on many considerations. A

At present, FAW Group has effective control of listed companies including FAW sedan (000800) as a medium and high class car and its own brand base, FAW Xiali (10.89, -0.21, -1.89%) as an economic vehicle base (000927) and FAW four ring (11.55, -0.31, -2.61%) (600742), which is positioned as vehicle wheel and interior decoration business.

Based on the current domestic regulatory authorities' institutional arrangements for the relationship between the parent company's overall listing and the listed subsidiaries, FAW Group, which needs to be listed as a whole in the whole country, is very difficult to bypass FAW sedan (000800).

Once FAW Volkswagen and truck business enter the listed companies, the profitability of the company will be improved qualitatively.

Without considering the impact of the overall listing of the group, it is estimated that the EPS in 07 and 08 years will be 0.24 yuan and 0.31 yuan respectively, so as to maintain the "overweight" rating.

4. Electrical equipment

We believe that the electrical equipment industry will get new development space in the plan.

The plan emphasizes resource conservation and pformation of growth mode, and electrical equipment related enterprises with energy saving concept will benefit.

It is suggested that we should pay attention to the industry Rongxin stock (002123) and HAC (600202):1) Rongxin shares are the leading enterprises in the field of industrial power SVC. In the situation of energy saving and consumption reduction and improving the safety and power quality of the power grid, it is the trend of the times. We are optimistic about the SVC business of the company, and think that the company will continue to maintain the leading position in the industry.

Another intelligent gas discharge device in the company, because there are few competitors in the market at present, is expected to maintain a compound growth rate of more than 50% in the next few years.

2) Kazakhstan air conditioning main business is petrochemical air cooler, power plant air cooler, power plant (nuclear) air handling unit.

The company is the only enterprise capable of developing air cooling equipment of 300 thousand KW or more.

Due to the good water-saving performance of power plant air cooling equipment, the demand for rapid development of thermal power and nuclear power shortage areas is increasing rapidly. The state requires new and expanded power plants in arid areas, and large air-cooled units should be constructed in principle, which will stimulate the market demand of air-cooled equipment.

In addition, we believe that the production of energy saving and environment-friendly products -- the big cold share (000530) of the sea water heat pump, the big rubber plastic (600346) producing rubber machinery and plastic machinery will also enjoy the support of revitalizing the Northeast policy. SST alloy (000633) now mainly produces electric tools and garden machinery, but the production base is mainly in East China, and the degree of benefit is relatively small.