Gree Real Estate plans to buy 100% of its shares. Gree Real Estate plans to purchase 100% of Zhuhai's duty-free shares from the Zhuhai Municipal State-owned Assets Administration Commission and Urban Construction Group, with a transaction consideration of 8.978 billion yuan, including 7.631 billion yuan for shares and 1,347 billion yuan for cash. Furthermore, it plans to raise supporting capital by issuing shares to no more than 35 specific investors, and the amount raised is not expected to exceed 7 billion yuan. Before this transaction, Gree Real Estate's total share capital was 1,885 million shares. After the transaction was completed, Gree Real Estate's total share capital will increase to 3.303 billion shares.

Gree Real Estate is going hand in hand in big consumption+boutique real estate+biomedicine, and the duty-free business is expected to become a new growth point for the company. The real estate business is the company's core business. The business model is based on independent development and sales, and the main products are high-end residences, positioned on the boutique route. Starting in 2016, the big health industry was expanded, focusing on scientific research incubation+product landing+resource integration. The layout accelerated in 2020, and continued upgrades in product research and development, innovation and sales to seize new opportunities in the biomedical industry; after the restructuring is completed, the company's main business will undergo a substantial transformation and develop into a large consumer industry dominated by duty-free businesses, a real estate industry that adheres to the boutique route, and uses Kehua Biotech as a platform A company where the three major sectors of the biomedicine and health industry go hand in hand.

The Pearl Duty Free Group has been deeply involved in the port duty-free industry for more than 40 years. It is the first group of wholly state-owned companies in China to sell duty-free goods with the approval of the State Council. It has 14 holding companies, 9 of which are related to duty-free business, covering all aspects of duty-free procurement and sales. The comprehensive and integrated development of Zhuman Group on the channel side, category side, property side and operation side:

1) Channel side: ① Port duty-free: The market share of Zhuhai duty-free is about 3.5%, and the port duty-free business volume ranks second in the country. As of March 23, Zhuban owns a total of 7 duty-free shops that have already opened and 5 duty-free shops that have won bids. Of these, 10 are located in the Guangdong-Hong Kong-Macao Greater Bay Area. The layout of each port in Zhuhai is relatively complete, and is expected to bear the development dividends of the Greater Bay Area. Among them, the Gongbei Port store is the largest land port duty-free shop in the Asia-Pacific region and operates steadily in 2019-20. 19.79 billion yuan and 2,005 billion yuan, with gross margins of about 46%; At the same time, the duty-free territory of the Pearl Port has been expanded to Guangxi, Inner Mongolia and other places, and plans are to continue to expand the duty-free business at airports and ports across the country; ② Hengqin layout: Zhuhaifang lays out the Hengqin Shenhe area ahead of time, has won the bid for the Hengqin Port outbound duty-free shop, and is preparing a special retail benchmark project that focuses equally on Hengqin's business layout. It is expected to seize the market opportunities brought about after the closure of Hengqin; ③ Hainan layout: the East-West line runs in parallel; on the one hand, the plan is to rely on the Sanya Joint Project Apply for a duty-free license for the outlying islands, and on the other hand, actively expand Hainan in accordance with the overall deployment of Hainan Province Western duty-free market layout; ④ In-city duty-free: Zhuhai is a national key port city and the core city of the Guangdong-Hong Kong-Macao Greater Bay Area, with annual inbound and outbound passenger traffic exceeding 170 million; as a state-owned enterprise belonging to Zhuhai, it occupies the core window of the entry/exit ports of the three cities of Zhuhai, Hong Kong and Macao. We believe that in the future, Zhuban is expected to expand the duty-free market in the city in Zhuhai, make full use of the linkage effect of intra-city and port channels, and obtain incremental performance.

2) Category side: Zhuban's supply chain is perfect, tobacco and alcohol are traditional strengths. Tobacco and alcohol sales accounted for 84% and 14.5% respectively under the January-November 2022 epidemic. At the same time, brands introduced in the Juban perfumery category continued to improve their quality and expansion. Recently, the Gongbei Port import store has been upgraded and started trial business, and is scheduled to officially open on May 24, 23. The new store plans to introduce more than 100 international high-end fragrance brands, of which the proportion of first-time brands at the land port exceeds 50%; looking forward to the future, Zhu Ban plans to build a diverse range of perfumery brands in the Land Port category. Looking forward to the future, Zhu Ban plans to build a diverse range of fragrances+boutiques. Matrix, gradually improving perfumery and quality The proportion of sales is in line with the consumption needs of inbound and outbound travelers.

3) Property side: Most of the properties of duty-free shops and commercial stores in Zhuhai are owned or owned by the State Assets Administration Commission. Among them, owned properties mainly include Gongbei Port, Jiuzhou Port Duty Free and the Sanya Joint CBD project. Under this model, there is no rent rebate pressure, which can provide more space for profit margins; leased properties are mostly owned by the Zhuhai Municipal State-owned Assets Administration Commission or the Zhu Free's controlling shareholders. We expect the rent policy to be reasonable;

4) Operating side: Zhuhai Duty Free is actively deploying digital retail, cooperating with Gree Real Estate to create the duty-free and bonded plus tax comprehensive e-commerce platform, Zhuhai Duty Free Mall, which integrates online and offline, and has built a membership service system to actively explore new consumption scenarios. By the end of 2021, the cumulative number of visits to the Zhuhai Duty Free Mall reached 18.481 million, the total number of users was 14.86 million, the total number of order points was 64 million, and the number of product sequences exceeded 12,000.

Profit forecasts and investment suggestions: The company is deeply involved in the Guangdong-Hong Kong-Macao Greater Bay Area and has high-quality resources. If duty-free assets are injected, it is expected that the duty-free business at the port will grow steadily while expanding the duty-free business in the city and outlying islands. Performance growth can be expected. Excluding the duty-free business, based on the company's existing business, we expect the company's EPS for 2023-2025 to be 0.19 yuan, 0.26 yuan, and 0.31 yuan, corresponding to the stock price PE of May 17, 2023 to be 41, 30, and 25X respectively. Currently, the company's duty-free asset injection process continues to advance. The company's valuation is close to the average of comparable companies. The duty-free business is expected to inject new momentum into the company's growth, cover it for the first time, and give it an “increase in holdings” rating.

Risk warning: risk of transaction matters falling short of expectations; cash flow risk; operation-related risk; policy risk, etc.