Anhui Truchum Advanced Materials and Technology:Main Business Reversed,Step into Military Sector

Company Profile

    Anhui Truchum Advanced Materials & Technology Co Ltd produces copper and other metal basedmaterials. The Company manufacturers copper alloy plates, strips, sheets, rods, and wires, etc.

    Investment Highlights

    Copper manufacturer achieved good results in M&A transections. Anhui Truchum AdvancedMaterials and Technology has acquired Truchum Alloy, Anhui Senghai Hi‐tech, Truchum Logistics,Shuangyuan Pipeline and Dingli Technology since June 2014, transforming into a new materialand related equipment supplier from copper manufacturer. Although demand for copperincreased at a slower pace in 2015 and the price was under strong downward pressure, net profitattributable to shareholders grew up by 34.45% YoY last year. Operating revenue only slightly fell.

    Traditional business is to bottom out. Anhui Truchum Advanced Materials and Technologysignificantly raised its market share amid industry doom in 2015 through providing its clients withcompetitive price. And demand for copper started recovering with price rising in the beginningof this year. In addition, the Company has continued optimizing product mix and invested moreresources to develop high value‐added types.

    Dingli Technology, subsidiary under Anhui Truchum Advanced Materials and Technology,conducts comprehensive cooperation with military companies. Gross profit margin of theCompany’s products is extremely high. We believe the business will further boom and contributemore earnings to the Company.

    Earnings Forecast and Investment Recommendations: Net profit attributable to shareholders isexpected to reach CNY 291 million in 2016, CNY 438 million in 2017 and CNY 631 million in 2018.We made EPS forecast for the Company at CNY 0.65/CNY 0.98/CNY 1.42 in the three yearsrespectively, implying 29x/19x/13x PE. Reiterate OUTPERFORM.

    Potential Risks: worse‐than‐expected results of M&A, slower‐than‐expected update of traditionalproducts as well as progress of new material business.