Incident: The company issued an announcement on March 20. It is hereby scheduled to hold an H share class shareholders' meeting on April 12, 2023 to review and pass the resolution “Raising RMB 1.7 billion from the controlling shareholder, Harbin Electric Group's fixed increase in domestic shares”.
It is proposed to raise a fixed increase of RMB 1.7 billion (approximately HK$1,907 million) from the controlling shareholder, Harbin Electric Group, with an issue price range of HK$3.43 to HK$3.60 per share, equivalent to 0.45 to 0.47 times PB. According to the domestic stock purchase agreement between the company and the subscriber, Harbin Electric Group, the company has conditionally agreed to issue and the subscriber has conditionally agreed to subscribe for new domestic shares in cash at a total subscription price of about RMB 1.70 billion (about HK$1,907 million). The parties agreed that the initial subscription price would be HK$3.43 per new domestic share. If the closing price is higher than the initial subscription price, the company has the right to adjust the final subscription price to the closing price. The maximum price is HK$3.60 per new domestic stock, that is, the initial subscription price plus a 5% premium and rounded to the nearest two decimal places; if the closing price is equal to or lower than the initial subscription price, the final subscription price is the same as the initial subscription price. That is, the price range per share is 3.43 to 3.60 (3.43*1.05=3.60).
Currently, Harbin Electric Group holds 1.03 billion domestic shares, accounting for 60.4% of the total share capital of 1.71 billion shares. After issuance, the shareholding ratio will change to 69.8% to 70.1%. If the issue price is calculated based on the lower limit of HK$343 per share, the number of shares issued is 550 million shares. After issuance, Harbin Electric Group's holdings changed to 1.59 billion shares, accounting for 70.1% of the total share capital of 2.26 billion shares. If the issue price is calculated based on the upper limit of HK$36/share, the number of shares issued is 530 million shares. After issuance, Harbin Electric Group's holdings were changed to 1.56 billion shares, accounting for 69.8% of the total share capital of 2.24 billion shares.
The funds obtained from this additional issuance will help improve the company's financial situation and help the company develop its business. As of June 30, 2022, the company's debt ratio is about 80.22%. The net proceeds from this domestic stock subscription are expected to be about RMB 1,697 billion, and are intended to supplement the Group's working capital, thereby improving the asset liability structure and capital structure and reducing financial expenses and financial risks. In the context of China's strategy to promote green and low-carbon transformation and development, the proceeds from issuing new domestic stocks and domestic stock subscriptions provide financial support for the company's reform, transformation and sustainable development, which helps the company stimulate business development momentum and steadily advance the new strategy.
Investment analysis opinion: We believe that as a leading domestic energy equipment manufacturer, the company's performance is expected to be released rapidly along with many core equipment such as thermal power, storage, and nuclear power. The majority shareholders' large subscription for new domestic stocks this time shows the majority shareholders' support and confidence in the company. At the same time, issuing additional capital will also help improve the company's financial situation and further help the strategy to be implemented. Based on the 22-year performance forecast, we lowered the company's profit forecast for '22 million to 100 million yuan (222 million yuan before the reduction). At the same time, considering that the company's main business growth logic remained unchanged, we maintained our profit forecast for 23-24 at 615/1,620 million yuan. Consider that the company's performance will experience rapid growth starting this year, combined with fixed increase catalysis, and maintain the “buy” rating.
Risk warning: New installations of thermal power fell short of expectations, approved commencement of pumped storage fell short of expectations, demand for flexible transformation of thermal power fell short of expectations, raw material costs remained high, and international business risks.