The development of Foshan Lighting in 2005 and 2006 was lower than the industry average and lower than market expectations. Especially in the third quarter of 2006, the company began a series of sales system integration, which caused sales to be affected in the short term. It is expected that with the new system running in, the adverse effects will be eliminated and sales will gradually return to normal. We estimate that sales will recover in the fourth quarter of 2006 and achieve rapid growth in 2007.
Foshan Lighting and the above-mentioned quarterly sales growth rate of enterprises above designated size
The fourth quarter of 2006 to the first quarter of 2007 will be the turning point
We see a year-on-year decline in sales revenue in the third quarter, but we need to be aware that this is a short-term phenomenon caused by the company's integration period. As time goes by, the positive impact will gradually appear, and Foshan lighting sales will have an inflection point.
New shareholder ownership and strategic positioning of the company
After the completion of the Foshan Lighting Shares, the original state-owned shares were transferred to Prosperity and the joint venture between OSRAM and Prosperity, and the foreign shareholders will own 23.97% of the shares. Among them, OSRAM is the world's largest lighting electrical company. In 2005, its sales revenue was about 4.3 billion euros. The company is a manufacturing and trading company of lighting products, lamps and lighting materials.
Foshan Lighting is a company with long experience in process management and has the best cost control capability in China. However, Foshan Lighting's investment in technology is not large. Usually when a certain technology application market is close to maturity, it will quickly increase the mass production level and occupy the market. Foshan lighting products are mainly sold through the light source of the lighting market. There is a huge sales network in China, but there is still room for improvement in brand capabilities. Youchang and OSRAM have advantages in terms of market and technology. Equity transfer will be expected to form a strategic alliance between Foshan Lighting, Youchang and OSRAM.
The strategic positioning of Foshan Lighting determines that it will have good growth in the future. After Prosperity and OSRAM entered Foshan Lighting, the company's management remained stable, but it also began some more market-oriented internal integration (mainly including the reform of the sales system and compensation system), and these factors may affect the company's recent operational performance.
Internal integration has a short-term impact on sales in the third quarter of 2006
The integration of the domestic sales system began after the arrival of the new sales director in July. It mainly consisted of two major aspects. One was to adjust the level of distribution to the first-tier dealers, and the rebate method was adjusted. The adjustment of the level of distribution is actually to shrink the amount of the money. The result is that the dealers have reduced the order in order to control their own distribution funds; the adjustment of the rebate method mainly involves the direct incentive to increase the level 2 dealers. The result is to achieve greater control over the sales system.
In addition, the company is already working on a unified corporate image (CI) for the lack of a unified CI (Corporate Image) logo, which will be an important signal for the company to strengthen its brand building.
We have a positive assessment of the integration of the sales system, but it needs to be pointed out that the integration process has had a short-term negative effect on the third quarter of 2006. In addition to dealers to reduce the level of distribution (objectively is the inventory level adjustment)
In addition, due to Foshan Lighting's product price increase at the beginning of the third quarter (in fact, in 2006, manufacturers have increased product prices due to cost reasons) also had a short-term negative impact on sales. We visited some of the company's dealers and found that the negative impact was mainly reflected in July and August, and the domestic sales situation has gradually returned to normal in September. We expect domestic sales to be flat or slightly increase in the fourth quarter, which is higher than the previous domestic sales. The decline has changed a lot.
In terms of salary system reform, the company's incentives for sales personnel have been strengthened, but the overall reform is still in progress. It is especially important that the incentive system of senior management has not progressed. Judging from the situation, the company's current consideration is to complete the integration and the subsequent break-in period, to change the weak sales situation as soon as possible, and then consider the incentives of executives.
Although the internal adjustment of the company is still in progress, we believe that the worst situation has been seen in the third quarter. The domestic sales in the fourth quarter will show a recovery growth, while the sales growth will be driven by the export, and the domestic and foreign sales will grow together in the first half of next year. .
Osram orders speed in the second half of 2006
OSRAM has global market share in the Americas, Europe, Asia Pacific and Other parts of the world. The Americas is the largest regional market, while the Asia Pacific region accounts for 14%. In the Chinese market, OSRAM's influence is not as good as PHILIP, which is not commensurate with its position in the global market. OSRAM has technical advantages in high-end electric light sources, and Foshan Lighting has a very strong cost advantage in low-end products. OSRAM can accelerate the expansion of mid-range and high-end products with Foshan Lighting's powerful cost control capabilities.
As a German company, OSRAM has been operating steadily. In the first half of 2006, orders for Foshan Lighting were only 20 million yuan. There is still a big gap between the commitment level of 10 million US dollars. However, after entering the third quarter, the personnel exchanges between OSRAM and Foshan Lighting increased significantly, and the ordering speed of OSRAM also increased significantly compared with the first half of the year.
The main development direction: high efficacy products
Foshan Lighting has 26 automatic sets of T8 fluorescent lamps/sets. Among them: T8 1250/H production line 23/set, T8 1500/H production line 1/set, T8 medium speed 2000/H production line 3/set, T5 1250/H fluorescent lamp production line 4/set, compact Type of fluorescent lamp production line 10 / set. Introduced 2 metal/halide lamp production lines/sets. In 2006, we increased investment and introduced 3 sets/sets of T8 2000/H medium-speed fluorescent lamp production lines and 1/set of T5 1250/H fluorescent lamp production lines.
Foshan Lighting's key products for future development are high-efficiency light source products and lighting products.
Integrated energy-saving lamps are the weakness of Foshan Lighting. Foshan Lighting mainly provided capillary tubes, and electronic ballasts were produced through outsourcing. Since 2005, the company has strengthened its investment in energy-saving lamps, and electronic ballasts have begun to produce their own products. This shows that product quality has better control and the cost is more competitive. The company has introduced advanced technology equipment such as 1500/H automatic production line, mercury pellet production equipment, filament winding and melting wire equipment made in Switzerland. Foshan Lighting's energy-saving lamps have been maintaining rapid growth recently, and the current energy-saving lamp production line is full.
T8 is still in a period of steady growth in straight tube fluorescent lamps, and the company's expansion in T5 and T4 is also underway.
Metal halide lamps are also the focus of Foshan lighting. At present, Foshan Lighting has matured its technology in medium-power products, and is developing low-power products (mainly used for indoor lighting such as shopping mall lighting) and metal halide lamps for automobile headlights. Among them, automotive metal halide lamps have introduced a production line and mastered them. Production technology.
Due to the decline in bulk raw material prices, we expect gross margin to remain stable. In 2006-08, the company was 24.5%, 24, and 23.5%, respectively, and earnings per share were estimated to be 0.61, 0.675, and 0.746 earnings per share.
We believe that the company's reasonable valuation is 18 times PE in 2007, plus the company's asset premium of some bank equity and land use rights (about 1.1 yuan per share), we believe the company's reasonable valuation is 13.2 yuan, the proposed increase hold.
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