Main points of investment:
The company announced that trading will resume on October 24, and the stock exchange will absorb and merge the relevant documents of Shanghai Yangchen Investment Co., Ltd. (hereinafter referred to as "Yangchen B"). This transaction consists of two parts: 1) City Investment Holdings intends to issue about 244.596 million A shares at a price of 15.50 yuan per share to absorb Yangchen B shares, with a conversion ratio of 1:1. After the completion of the absorption and completion of the Yangchen B shares, the breeding pigs will be listed on the market and the legal personality will be cancelled. 2) after the stock exchange is completed, the Environmental Group will undertake all the assets, liabilities and other rights and obligations of Yangchen B shares under the holding of City Investment, and then split the Environmental Group in the way of survival and division. As the surviving party of this division, CIC Holdings (the surviving party) continues to operate real estate assets and business as well as other equity investment business. The separate subjects (namely Environment Group and Yuanyangchen B-share business) were renamed Shanghai Environment and listed in accordance with the relevant legal procedures.
The cash option is 10 yuan per share. In this merger plan, the cash option exercise price of CIC Holdings (except Shanghai City Investment) shareholders and Yangchen B shareholders (except Shanghai City Investment) is 10.00 yuan per share, which is 39.66% and 40.26% higher than the average stock trading price of 20 trading days before the pricing benchmark, which is higher than that of other comparable merger schemes. Before the suspension, the total market capitalization of City Investment Holdings and Yangchen B was about 46.67 billion yuan, and the corresponding share price was about 14.39 yuan per share. After the division, the valuation of CIC Holdings (the surviving side) is about 282.69-29.662 billion yuan, and the corresponding price is 11.17-11.73 yuan per share. The valuation of Shanghai Environment is about 5.863 billion-8.541 billion yuan, and the corresponding price is 7.63-12.16 yuan per share. From the perspective of valuation, the value of merger and division is higher than the exercise price, unless the stock price during the exercise period is much lower than the exercise price, shareholders are more likely to hold shares.
This transaction will solve the problem of inter-industry competition in the environmental protection business of CIC Holdings. According to the company's 2015 annual report, CIC Holdings' main income comes from real estate (76.7%), environmental protection business (20.5%) and investment (2.7%). The company's Environmental Group and Yangchen B shares both belong to the environmental protection industry, and the controlling shareholders are Shanghai City Investment, which are limited in the formulation of operational decisions and strategic objectives. After this transaction, the merger of City Investment Holdings's environmental protection business and Yangchen B-share business solved the potential problem of inter-industry competition.
After the transaction, the company's debt-paying ability remained stable, and its profitability improved slightly. According to the financial consultant simulation calculation of this transaction, after the completion of this transaction, the asset-liability ratio of City Investment Holdings (surviving party) decreased slightly, and the current ratio and quick ratio basically did not change much. Due to the divestiture of the environmental business, the total assets of CIC Holdings (surviving side) decreased, but the net interest rate increased by 6.88 percentage points in 2015 and 1.56 percentage points from January to June 2016, with a slight improvement in profitability.
Investment advice: do not rating temporarily. City Investment Holdings will be mainly engaged in real estate development and investment after the transaction. Assuming that the company completes the transaction in 2017, that is, starting from 2017, the performance forecast does not include environmental protection business and uses post-transaction equity, the company's EPS in 2016 and 2017 is expected to be 1.56 yuan per share and 1.49 yuan per share, respectively, corresponding to 10.13 times and 10.58 times. RNAV estimates that it is about 17.8 yuan per share. Considering that the transaction has not been completed and the transaction is still uncertain, we do not rate CIC Holdings for the time being. Risk Tip: industry downside risk.