The current situation of the company
Qingsong shares announced on October 11 that it intends to issue 0.72-101 million shares to Mr. Lin Shida, a director, raising 3.2-450 million yuan to supplement liquidity and repay bank loans. The plan still needs to be approved by the shareholders' meeting and approved by the CSRC. In addition, the company announced on September 28 that it intends to transfer 100% equity in Qingsong Chemical and Hong Kong Longsheng, two wholly-owned subsidiaries engaged in turpentine deep processing business. We expect that if the chemical business is successfully completed, Mr. Lin Shida will become the controlling shareholder and controller of the company, which is conducive to the stability of the company's development strategy and is expected to enhance the company's core competitiveness in the field of cosmetics.
Comment
1. The controlling shareholder and the actual controller may make it clear that the stability of the company's operation and development is expected to be strengthened. Before this fixed increase, the company had no controlling shareholders and actual controllers. Mr. Lin Shida, the director of the company, indirectly holds 9.17% of the shares of the company through 100% holding of Hong Kong Northbell, making him the largest shareholder of the company. If the increase is successfully completed, Mr. Lin Shida and his concerted actor, Hong Kong Northbell, will hold a total of 20.27% of the listed company's 24.04% shares, and Mr. Lin Shida will become the controlling shareholder and actual controller of the company. We believe that the clarity of the company's controlling shareholder and actual controller will help the company's resources to focus on the cosmetics consumption business and promote the healthy and sustainable development of the company.
2. It is proposed to spin off the turpentine deep processing business and focus on the large consumption business with cosmetics business as the main business. The company announced on September 28 that it intends to transfer 100% equity of two wholly-owned subsidiaries, Qingsong Chemical (production company) and Hong Kong Longsheng (trading company), which are engaged in turpentine deep processing business, and openly solicit the transferee from the public. the equity transfer bill has been examined and approved by the board of directors. If the equity transfer is successfully completed, the company will completely divest the turpentine deep processing business (32.1% of the revenue in 2021) and focus on the cosmetics consumer business (67.9% of the revenue in 2021). It is expected to help the company focus on resources and is expected to enhance the company's core competitiveness and sustainable operating ability.
3. Pay attention to the effectiveness of business adjustment in the short term, and be optimistic about the increasing trend of Northbell's market share in the medium and long term. In recent years, the supervision of the cosmetics industry has become stricter, the threshold for entry into the industry has been raised, and the fierce market competition has accelerated the survival of the fittest. According to Green Eye statistics, as of July 14, 2022, 166 cosmetics enterprises have cancelled their Cosmetic production licenses this year. We believe that Northbell, as the leader of cosmetics ODM in China, has significant advantages in R & D strength, quality control ability and scale. Under the pressure of repeated epidemic, rising prices of raw materials and stricter supervision of the industry, on the one hand, the company actively expands customer resources and sales orders, on the other hand, it can reduce costs and increase efficiency by optimizing production processes and streamlining personnel. Pay attention to the effectiveness of the company's follow-up business adjustment.
Profit forecast and valuation
Taking into account the uncertainty of this increase and equity transfer, we maintain the earnings forecast for the time being, with the current share price corresponding to 28 times 2023 / 13 times earnings, and maintaining an outperforming industry rating and a target price of 7.00 yuan. corresponding to the 2022max 2023 price-to-earnings ratio of 39 times / 17 times, there is 36% upside.
Risk
The fixed increase and the progress of equity transfer are not as expected, the competition in the industry continues to intensify, the risk of core customer loss, the risk of raw material price fluctuations.