Key points of investment:

Nantian Information released the “Notice on Termination of the Acquisition of 90% of Shares in Beijing Caracal Technology Co., Ltd.”. All uncertainties should have been settled! In the previous report, we clearly stated “Risk Warning: Increased issuance and uncertainty of the plan require further clarification”.

Subsequent announcements withdrew the issuance of the additional issue (and implied that additional issuance would continue to be declared after the revised fund-raising) and terminated the acquisition of 90% of Caracal's shares. All uncertainties in the issuance and plan should have been implemented, and investors should find no further uncertainty (or disadvantage).

What is certain is that the additional distribution plan improves incentives and implicit profit returns. 1) An additional 1.11 billion yuan was issued. Project 1 (software development and service system construction for small and medium-sized banks) had an investment return period of 4.7 years, and Project 2 (solution and application software development project) had a payback period of 5.0 years. The two projects implicitly reported an average of 250 million yuan per year after delivery. 2) After the issuance was withdrawn on September 5, it was clearly announced that “we will wait until the completion of the completion of this non-public fund-raising investment project before arranging follow-up matters” suggests a leading signal to be reported after the addition is issued, and it is common industry practice for the report to be accompanied by convincing evidence of profit returns. 3) The plan that the company continues to try to pass contains two major definite signals: improving incentives and implicit profit returns are becoming more and more certain!

What has been decided is the acquisition strategy, and the apparent twists and turns will be the time to invest. 1) On the one hand, the announcement of termination of the acquisition stated that “there are major differences on matters such as payment terms and payment progress of this transaction”, which is different from the statement of the pre-disclosure plan of the acquisition announced on July 12. Investors can reasonably speculate that the differences may be about the difficulty of implementing profit terms, changes in the intentions of the acquirers, etc. Terminating the acquisition of risky assets is beneficial to the company's fundamentals. 2) On the other hand, Nantian Information's high profit return implies a continuous acquisition strategy, and the apparent twists and turns will be the investment point. For example, Hande Information announced the “Notice Concerning the Termination of Major Asset Restructurings and Stock Resumption” on May 27, 2014, and Jiuqi Software announced the “Notice on Termination of Major Asset Restructurings and Stock Resumption” on January 10, 2014. The termination plan was only the beginning of a continuous expansion strategy. The stock price subsequently performed continuously. Hande Information announced a 21% increase three days after the termination of the acquisition (finally, Jiuqi Software announced on July 23, 2014, that it was announced on January 28, 2015. shares buy assets). Based on this, it can be assumed that the twists and turns of Nantian Information's acquisition were similar.

Many times, with a sense of urgency in the pace of time, investors can speculate on more positive fundamentals. The incentives and acquisition of Nantian Information implied many sense of urgency: 1) An additional draft was announced on March 15, and approval by the State Assets Administration Commission was announced on April 21. The amendments were announced on July 27, and approval by the State Assets Administration Commission was announced on August 11. 2) After the announcement was approved by the State-owned Assets Administration Commission on August 11, the announcement was withdrawn on September 6 (and implied that it would be reported after completion). 3) According to common practice, the proposed plan to acquire Caracal's shares should lag behind the issuance of additional shares, and the company directly announces the termination of the acquisition without waiting for clarification (the company may reasonably choose to announce later). The urgent treatment in many places above suggests a tight time window for capital operation matters. Investors can reasonably expect more positive fundamentals in capital operations. Many optimistic signs of growth have implied a reversal in profits. 1) Impairment losses in 2015 were 43.69 million yuan, including 23 million yuan for bad debts and 16.57 million yuan for impairment losses for intangible assets. 2) Gross margin has been rising for two consecutive years. It can be seen that the share of the software business has increased. 3) Caracal hinted at the beginning of continuing acquisitions. Maintain an “increase in holdings” rating and maintain profit forecasts. The company's revenue for 2016-2018 is estimated to be 2,260 million, 25.39 and 2,731 billion yuan, respectively. Net profit for 2016-2018 was $21 million, $52 million, and $57 million, respectively.