Ruyi Group is a leading domestic commodity trading enterprise
The company's operating entity is Yuanda Bussan Group Co., Ltd., a holding subsidiary. Ruyi Group holds 52% of its shares. After more than 20 years of development, Yuanda Bussan has evolved from a traditional spot trader to a commodity trader. In other words, it is based on spot goods, using futures instruments as a means to avoid price risks, expand sales channels, obtain commercial profits, and provide value services to the upstream and downstream industrial chains through the organic integration of futures spot instruments. In 2015, Yuanda Bussan was selected as one of the top 500 Chinese enterprises and is a leading domestic trade enterprise.
Combine the current schedule and make a big splash
The commodities handled by the company are mainly divided into three categories: energy commodities, basic raw materials, and agricultural and sideline products, covering basic industrial raw materials such as crude oil, non-ferrous metals, steel, agricultural products, iron ore, coal, etc., and the variety is rich. Thanks to the company's timely transformation to an integrated business model, the company achieved rapid growth in profit scale. In 2015, operating income reached 55.4 billion yuan, an increase of 21% over the previous year, achieving six consecutive years of positive growth; net profit attributable to shareholders of the parent company reached 300 million yuan, a cumulative year-on-year increase of 32%, achieving three consecutive years of positive growth.
Wholly acquired Yuanda Properties and implemented employee shareholding
The company issued shares and paid cash to acquire 48% of the shares of the subsidiary Yuanda Properties, and raised additional supporting capital from Yuanda Group, the largest shareholder, to set up an Asia-Pacific operation center in Singapore. After the transaction, Yuanda Bussan became a wholly-owned holding subsidiary of the company, rationalizing the parent and subsidiary governance structures and expanding financing channels. 23% of the shares of listed companies are used for employee shareholding, and adding performance rewards will greatly stimulate business enthusiasm and strengthen the effect of equity incentives.
Performance growth is guaranteed, and low valuations create value-added space
299 million shares of the company after the transaction. Considering that restricted sales and the largest shareholder held 57% of the shares, the actual effective tradable share capital was only 127 million shares. The share capital is small and the price is very flexible. The PE acquisition of Yuanda Bussan is only 12 times, which is 30 times lower than the industry average. The valuation repair will give the Group a significant increase in value. The net profit growth rates for 2016 and 2017 corresponding to performance promises were 15.8% and 16.3%, respectively. The promised growth rate is high, and performance growth is guaranteed.
Servicalization and financialization of trade are major trends
In recent years, against the backdrop of a continuing global commodity slump, similar domestic commodity trading companies have sought transformation and innovation. For trading companies that have been deeply involved in the commodity market for many years, combined with the resources and experience they have accumulated, the servicealization and financialization of trade has gradually become the theme of the industry. The company combined the resources and experience accumulated over many years of intensive commodity market cultivation, adjusted its business model in a timely manner, and achieved the company's development and growth.
First coverage, giving a “increase in holdings” rating
The company's current combined trading capacity is outstanding, and it is expected that improvements in the governance structure after the restructuring will continue to drive the company's performance to lead the industry. We forecast the company's net profit for 2016-2018 to be 578, 6.71 and 759 million yuan, and EPS to be 1.93 yuan, 2.24 yuan, and 2.54 yuan. We believe that the company's valuation should enjoy a certain premium compared to the expected price-earnings ratio in 2016, which is about 30 times that of peers. For the first time, the “increase in holdings” rating was covered and given. The target price was 71.09-77.01 yuan, corresponding to 37-40 times the price-earnings ratio in 2016.
Risk warning: commodity sentiment declines, performance growth falls short of expectations, and exchange rate fluctuations raise financial costs.
