Event: on December 25, 2015, Yongda Group issued a "preliminary plan for issuing shares and paying cash to buy assets and raise supporting funds and related party transactions" to acquire Haike Finance. We believe that this acquisition means that Yongda will formally transform its financial control platform and will be involved in direct investment, third-party payment, online loan, big data and other businesses in the future.
Switch products are the main source of income and gross profit of the main business. The company's main products are switches, switchgear, transportation facilities and electricity meters. From 2011 to the first half of 2015, switch business income accounted for more than 60% of the main business income, and switch business gross profit accounted for more than 80% of the main business gross profit.
The transformation of the financial control platform is advancing steadily: (1) it is difficult for the main business to support the rapid development of the company. From the end of 2011 to the first half of 2015, the company's operating income and net profit continued to grow negatively compared with the same period last year, and the net profit only achieved positive growth after the completion of equity participation in Fushun Bank in 2014.
(2) large investment income can be obtained by participating in Fushun Bank. By the end of June 2015, the company achieved an investment income of 26.87 million yuan through its shareholding in Fushun Bank, accounting for 71.3% of the net profit.
(3) it is proposed to acquire Haike Finance to create a new situation of Internet finance. After the completion of wholly-owned Haike financing, Yongda will achieve extensive layout in the areas of third-party payment, online loan platform, crowdfunding and micro-loans. Haike Rongtong is mainly engaged in third-party payment business, and carries out Internet lending platform business through its holding subsidiary Zhongxin Finance, prepares to launch Internet crowdfunding business through wholly-owned subsidiary Zhongxin Public Investment, and plans to set up a joint venture with Haidian State Investment to set up a new company, Haifeng Finance, to engage in Internet micro-loan business.
(4) to set up a subsidiary Yongda to innovate and enter into the field of direct investment. The company has invested in the establishment of Yongda Innovation Financial Services (Shenzhen) Co., Ltd., a wholly-owned subsidiary in Shenzhen Qianhai Shenzhen-Hong Kong Cooperation Zone. In the future, the direct investment platform will focus on the promising fields of communications and information, intelligent technology, Internet, finance, energy conservation and environmental protection, education, etc., to seek domestic and foreign investment and M & A targets for Yongda Group.
(5) bidding for the subject matter of life insurance in order to join the blue ocean of life insurance. According to the announcement, the company is currently bidding for equity in life insurance companies. If the company succeeds in bidding, it can successfully join the life insurance industry and further consolidate the financial control platform.
(6) the synergy effect of "traditional finance + Internet finance + big data" will ferment. Commercial banks can provide funds storage, credit and innovative financial services for Internet finance, while Internet finance can provide marketing and promotion for traditional financial services represented by commercial banks, and the customer migration between the two will be more frequent. The development of traditional finance and Internet finance not only provides the original data support for the construction of big data platform, but also provides it with application output port to achieve a virtuous circle.
Investment suggestion: we expect the company's EPS to reach 0.25,0.73 and 0.88 yuan respectively from 2015 to 2017 (the profit forecast has been corrected), with a 6-month target price of 38.3 yuan.
Risk hint: the decline in banking performance exceeded expectations, and the development of Internet finance fell short of expectations.