The company announced that Huachangda set up a wholly-owned subsidiary in the UK, and then the British subsidiary established an American wholly-owned subsidiary (HuachangDacrossAmericaInc.) as the acquirer and purchased 100% of the shares in Dearborn Mid-WestCompany, LLC, a wholly-owned subsidiary of Dearborn Mid-WestCompany, LLC. The underlying transaction consideration was 53.5 million US dollars (equivalent to about RMB 329.1588 million). The company announced its 2014 annual report. The 2014 revenue was 43.62 million yuan, up 106% year on year, and net profit belonging to shareholders of listed companies was 49.131 million yuan, up 185.80% year on year. At the same time, the announcement was based on the company's total share capital of 272.52 million shares on December 31, 2014, and an increase of 10 shares for every 10 shares of all shareholders using the capital reserve fund. Comment: The main business revenue increased sharply by 106.03% in 2014. The main reason was the successful merger and acquisition of Shanghai Demeco Auto Equipment last year, enhancing the company's competitiveness and increasing sales revenue sharply. In October 2014, Huachangda completed the share+cash acquisition of Demeco. Demeco specializes in automotive white body production lines, and is a downstream industrial automation business with high integration requirements. Shanghai Demeco is positioned in the field of industrial robot system integration, and is mainly engaged in the design, R&D, production and sales of complete industrial robot equipment and production lines. Shanghai Demeco is mainly composed of Tianze Soft Control Co., Ltd. and Shanghai Daoduo, two companies: 1) Tianze Soft Control specializes in EMS assembly transmission lines, EMS door cover conveyor lines, EMS aircraft transport delivery lines, and EMS roof transmission line projects. The core competitive advantage is the development of system-related software; 2) Shanghai Daoduo specializes in the design, production and sale of automobile welding jigs, inspection jigs and car body parts. The competitive advantage is mainly reflected in the production of hardware facilities. Since the products of both companies are used in the field of intelligent production of automobiles and parts, and each focuses on the software and hardware parts in this field, the two sides decided to establish Shanghai Demeco in June 2011, and the two parent companies were absorbed and merged by Shanghai Demeco in November 2012. The business progressed smoothly in 13 years after the merger. After cooperation, it obtained an increase in automakers' welding production line robot integration turnkey business. In 2013, revenue was 240 million yuan and net profit was 37 million yuan; growth rates reached 55% and 150%, respectively. According to estimates that Demeco's current order of 444 million yuan in early 2014, Demeco's revenue for the full year of 2014 was 4-450 million yuan, with a net profit of more than 60 million yuan. Considering that most projects were settled at the end of the year, Demeco's subsidiary consolidated for 4 months in 2014, with revenue of 219.32 million yuan and net profit of 42.57 million yuan, which is in line with expectations. DMW, the target of the acquisition, is one of the largest automotive intelligent equipment system integrators in the US. Its business involves automobile manufacturers and industrial customers providing intelligent material transportation systems, site assessment, equipment installation, concrete infrastructure, and intelligent logistics systems, including the Michigan Division, Kansas Division, New Jersey Division and Detroit Division. This time, only the assets of the Michigan, New Jersey and Detroit divisions were acquired. The Kansas division, which mainly provides material transportation management equipment for mining companies, has been losing money since 2011 and is not within the scope of this acquisition. MNW's main business unit has cooperated with Chrysler and Ford for more than 30 years, and with GM for more than 8 years. Over the past few years, DMW's customer base has continued to grow: new customers include automotive foundries, industrial automation customers, and famous automobile manufacturers such as Toyota, Nissan, and Tesla; industrial companies include GallagherKaiser, Kuka, Comau, and Cinetic. The main attempt is to bring market breadth and industrial chain extension to Huachangda with advanced technology mastered by DMW in the US. DMW's advantage is that it has had good cooperative relationships with traditional automobile manufacturers for many years. DMW's related revenue from the three major US automobile manufacturer projects accounts for more than 80% of total sales revenue, as well as the management and resource technology integration of material delivery system projects. However, DMW lacks financing support from the capital market, and due to limited production capacity, project subcontracting costs account for more than half of operating costs. Therefore, DMW's profit level is currently low, with a gross margin of about 10% and a net profit margin of 2-3%. After the acquisition, when a large number of outsourced operations are completed by Huachangda, the gross margin level is expected to rise to more than 16%, and profitability will increase dramatically. The total equity value of DMWLLC as assessed using the earnings method was RMB 341.18 million, and the assessed value compared to the target company's net assets of RMB 74.88 million, with an appreciation rate of 355.66%. The review report assumes that the listed company takes the form of 100% debt to complete the acquisition, with an annual interest rate of 4.3%. We speculate that Huachangda will apply for a merger and acquisition loan from the US to complete the acquisition. It is estimated that it will generate financial expenses of about 2.3 million US dollars (about 14 million yuan) per year. If the synergy effect is released after the merger of the two parties, future profits are expected to reach 50 million yuan or more per year. Although DMW's net profit from January to September 2014 was only 8.83 million yuan, due to the obvious recovery of the US economy in the second half of 2014, and the concentration of new orders in the fourth quarter, we estimate that net profit for the whole year will be expected to reach about 20 million yuan, the same level as in 13, and with a sharp improvement in the market at the end of 2014, DMW is expected to obtain a net profit of more than 50 million yuan in 2015. Since Huachangda's acquisition of DMW is an all-cash acquisition, it is expected that the procedure can be completed in only 1-2 months, or 10-11 months. On the basis of our original estimate that Huachangda (including Huachangda headquarters and Demeco) will obtain a net profit of 111 to 130 million yuan in 15 years (in 2015, without considering the acquisition of DMW, the net profit of Huachangda headquarters is expected to be 24 million yuan, and Demeco's net profit is 112 million yuan), it is estimated that net profit of 40 to 50 million yuan can be increased. Furthermore, we expect Huachangda headquarters to enter a recovery period and a period of growth in 2015. By gradually accepting orders transferred from DMW, the revenue side will increase markedly, thus driving collaborative profit growth. Earnings per share are expected to be 0.65, 0.90, and 1.19 yuan in 2015-2017, with a dynamic valuation of 35-40x in 2015, with a target value range of 22.74-25.99 yuan, giving a purchase rating for the first time. Risk warning. 1. The synergy effect after the acquisition fell short of expectations. 2. The economic downturn has affected the slowing down of investors' production line transformation.