Key points of investment:
incident. The company recently announced that it intends to acquire assets related to IACG SA's ST&A (upholstery and acoustic components) business in cash. The specific transaction method is: IACG SA injects ST&A related assets into the newly established company B1, and Shenda Co., Ltd. subscribes 70% of the shares of B1 company through Shenda UK. The assets injected into B1 include the shares of various companies in the US, Poland, South Africa, China, etc., and assets related to the soft accessories and acoustic components business. The consideration for this transaction is related to working capital and interest-bearing liabilities on the day of delivery and is subject to confirmation after delivery. Among them, ST&A's corporate value is determined to be 570 million US dollars, the estimated EV/EBITDA (16E) is about 4.55 times, and the estimated transaction consideration is 308 million US dollars.
IAC is the world's leading supplier of automotive interior components. The IAC Group was founded in 1988 and has now developed into the third largest automotive interior parts supplier in the world and the only global supplier focusing on interiors. The ST&A business is a strong segment of the IAC Group. It has a development history of more than 100 years, providing automotive upholstery and acoustic component services to major OEMs in the global automotive industry such as GM, BMW, Daimler, and Ford. The company's unaudited revenue for 2014-2016Q3 was US$1,137, 11.41 and US$877 million, respectively, and EBITDA was US$8078, 9998 and US$94.44 million respectively. According to Roland Berger's report, the global ST&A business market size was estimated to be about $10.23 billion in 2015, with a compound annual growth rate of about 2.6% in 2012-2015. Among them, Autoneum, IAC, and HP Pelzer account for 20%, 11%, and 10% of the overall ST&A market, respectively, making them the top three global ST&A markets.
The company has taken an important step in expanding the automotive interior business with high added value. As a comprehensive large-scale enterprise with multiple businesses, the company has actively developed a high-value-added automotive interior business in recent years. The automotive interior business CAGR reached 20% in 2011-2015, and the company has now developed into the largest carpet supplier in China. The acquisition of IAC's ST&A business is in line with the direction of the company's strategic transformation and upgrading. As a leader in the global automotive upholstery and acoustic components business market, IAC is expected to take the lead with its global layout and competitive advantages in various fields under the trend of automobile lightweighting and electric vehicle development, which places higher demands on interior parts. At the same time, the merger of IAC can effectively strengthen the company's advantages in the automotive interior business sector, enhance its international influence, significantly increase the business, and have positive development significance.
In the context of further progress in the reform of state-owned enterprises, the company is expected to take the lead in the reform. Shenda Group, the controlling shareholder of the company, holds 31.07% of the company's shares. The actual controller of the company is the Shanghai State-owned Assets Administration Commission. In the 2016 quarterly report, Shenda Group clearly stated that in response to the call for state-owned enterprise reform, the company is studying the listing of the textile group's overall or core business to achieve listing of its textile products and foreign trade related businesses; and plans to gradually inject some of the unlisted foreign trade business assets controlled or indirectly controlled by listed companies within five years that meet the requirements.
The increased performance of IAC acquisitions is not considered for the time being. The company is expected to achieve net profit attributable to the parent company in 2016-2018 to be $228, 256 and $307 million respectively, up 34.54%, 12.12%, and 19.56% year-on-year, corresponding to EPS of 0.32, 0.36 and 0.43 yuan/share, respectively. The relevant comparable company's PE in '17 was between 20x-43x. Considering the high growth potential of the company's automotive interior business, the company was given 40XPE in 2017, with a corresponding target price of 144 yuan, increasing its holdings.
Risk warning: State-owned enterprise reform fell short of expectations, domestic and foreign demand declined, and major asset restructuring failed.
