Main points of investment
Enter the Internet business and create a new profit point. The growth rate of the company's traditional business has slowed in the past two years. However, as a veteran enterprise in the industry, the company has accumulated a lot of resources in technology research and development, product manufacturing, marketing and other aspects, and the company's market position will not change greatly in the short term. The company's cross-border acquisition of Chizi City is aimed at conforming to the general trend of market development, moving into the Internet industry to seek new profit space, avoiding macroeconomic risks with diversified business models, and the profit situation may improve in the future.
Chizi City, the target of the acquisition, is the first entrance of domestic mobile to the sea. The company plans to invest 2.5 billion to acquire 100% stake in Chizi City. Chizi City was named the top developer of Google Play in 2015, and its products were named Google Play's best application of the year. The company's core product, Solo series App, has been widely welcomed and praised by users at home and abroad since its launch. It is currently the number one third-party desktop product in the world, and some applications have doubled the number of users in recent months. At present, the company has built an advertising delivery system (Solo Audience) and an open platform (Solo Platform) to provide information services to 400 million users worldwide, which will generate a lot of profits in the future.
Moving to sea is the future trend of the industry, and overseas markets will create huge profits. When the market segments of the domestic Internet industry have gradually become the Red Sea, it is difficult for enterprises to obtain sufficient profit space. Far-sighted mobile Internet companies, including Chizi City, have begun to enter overseas markets, extending their domestic business models to Europe and the United States, making huge profits. Overseas mobile Internet market is more standardized, and users' payment habits and copyright awareness are also stronger than domestic users. Therefore, Chizi City as the main domestic mobile Internet sea entrance, overseas business may bring considerable profits for the company. If the acquisition is successful, Dayilong will also take this opportunity to hand over a satisfactory revenue report.
Valuation and rating: we estimate that the EPS of the company from 2016 to 2018 is 0.72,1.18,1.64 yuan respectively, and the corresponding PE is 32 times, 20 times and 14 times respectively. Considering the industry environment and the company's revenue after cross-border transformation, we gave the company a "overweight" rating of 40 times PE in 2016, corresponding to the target price of 28.95 yuan.
Risk hints: the risk that the M & A project is advancing or falling short of expectations; the risk that the mobile Internet business is advancing or falling short of expectations and failing to achieve performance commitments; and the risk of slow development in the beverage packaging machinery industry.
