Weigao Orthopedics plans to use Henderson Daxin: On June 14, 2016, Henderson Daxin issued a major asset restructuring plan. It is proposed to replace all assets and liabilities with the equivalent portion of Shandong Weigao Orthopedic Materials Co., Ltd., with assets priced at 1,219 billion yuan, 100% of Weigao Orthopedic's shares at 6.06 billion yuan. The difference will be purchased by the company by issuing 480 million shares to Weigao Co., Ltd. using 10.09 yuan/share.
Shareholding structure after completion of the transaction: After the transaction is completed, considering supporting capital raised, the total share capital of the listed company is 869 million shares. Weigao Co., Ltd. and its co-actors will hold 526 million shares of Henderson Daxin, a shareholding ratio of 60.52%. Weigao Co., Ltd. will become the controlling shareholder of the listed company.
Business analysis of the target company: Weigao Orthopedics has long focused on R&D, production and sales of orthopedic implants and tools including spinal, traumatic and articular orthopedic implants and instruments, and its market share ranks first among domestic brands.
In recent years, sales of various orthopedic implant products from Weigao have increased year by year; average sales prices have maintained a steady upward trend; profitability is at a high level. In 2013-2015, the comprehensive gross margin of Weigao's main orthopedic business all exceeded 70%, and net profit for each year exceeded RMB 200 million, which is at a high level in the domestic industry.
Prospects: The scale of the domestic orthopedic medical device industry is expanding rapidly. In 2010-2014, China's orthopedic implant market grew rapidly. Sales revenue increased from 7.2 billion yuan to 13.9 billion yuan, with a compound annual growth rate of about 17.87%. It is estimated that by 2019, the industry market size will reach 31.1 billion yuan.
Investment advice: Performance pledgers promise that Weigao Orthopedic will achieve net profit of no less than 308 million yuan, 374 million yuan and 469 million yuan in 2016, 2017 and 2018, respectively, with year-on-year growth rates of 40%, 22%, and 25%. We believe that the company's development prospects are good, and there is a high probability that the promised performance will be achieved. Based on promised performance, the company's EPS for 16-18 is estimated to be 0.35, 0.43, and 0.54 yuan. On February 24, 2016, the company's stock price before it was suspended was 12.66 yuan, the market value after the corresponding restructuring was 11 billion yuan. The PE for 16-18 years after the corresponding restructuring was 36, 29, 24 times, covering the “Buy-A” rating for the first time, with a target price of 17.15 yuan.
Risk warning: restructuring progress is lower than expected, demand for orthopedic medical devices is lower than expected, etc.