Events:

On February 14, the company announced that the proposed acquisition of Sanzhou Nuclear Energy had been notified by the State Administration of Science, Technology and Industry for National Defense on the review of military matters related to the reorganization and listing of nuclear energy assets in Sanzhou. The national department in charge of science, technology and industry for national defense agreed in principle to the reorganization and listing of Sanzhou nuclear energy.

2. The company announced earlier that the company intends to purchase its 100% stake in Sangzhou Nuclear Energy from the shares issued by Sanzhou Special Management, China Nuclear Power Institute and Huaxia Life Insurance Company. The expected equity value of Sangzhou Nuclear Power is 1.6 billion yuan, and the issue price is 9.09 yuan per share. At the same time, eight investors, including Sanzhou Special Management and Zhongguang Nuclear Capital, raised 810 million yuan in a non-public offering at an issue price of 11.97 yuan per share.

Comments:

1. Toy manufacturer Ding Zeng acquires Sanzhou Nuclear Energy.

1) at present, the company focuses on toys, and its profits have continued to decline in recent years.

For more than ten years, the company has focused on the R & D, design, production and sales of electronic electric toys. It is one of the largest independent brand electronic electric toy enterprises in China. The main products are strollers, computer learning machines, baby toys, electric cars and so on.

In recent years, due to the economic slowdown at home and abroad and the rising prices of raw materials and labor, the company's operating income and profits have declined, with income falling from 505 million yuan in 2012 to 404 million yuan in 2014. the net profit of returning to the mother dropped from 44 million yuan in 2012 to 15 million yuan in 2014.

2) with the acquisition of Sangzhou Nuclear Energy, the company will maintain its controlling shareholder.

Issue shares to buy 100% stake in Sangzhou Nuclear Power. The company plans to purchase a total of 100% equity from Sanzhou Nuclear Power shareholders, China Nuclear Power Institute and Huaxia Life Insurance Co., Ltd., with an estimated value of 1.6 billion yuan and an additional price of 9.09 yuan per share.

Fixed increase to raise matching funds. By way of price-locking, the company plans to raise 810 million yuan from eight investors, including Sanzhou Special Management and Zhongguang Nuclear Capital, with an issue price of 11.97 yuan per share, which is mainly used for the construction of Sanzhou nuclear energy project.

After the completion of the transaction, the controlling shareholder now accounts for 32% of the equity, and the controlling position remains unchanged. Prior to this transaction, Qunxing Investment held 44.85% of the shares of the listed company and was the controlling shareholder of the listed company. Lin Weizhang holds 40% of Qunxing Investment, while Huang Shiqun holds 30% of Qunxing Investment. Lin Weizhang and Huang Shiqun are the actual controllers of listed companies. After the completion of this transaction, Qunxing Investment holds 31.71% of the shares of the listed company and is still the controlling shareholder of the listed company. Lin Weizhang and Huang Shiqun are still the actual controllers of the listed company.

2. Sanzhou Nuclear Power is the main supplier of nuclear power main pipeline, with significant advantages in individual military products, and nuclear power and military business have ushered in a period of rapid growth.

The main results are as follows: 1) the three continents nuclear energy has established the dominant position of nuclear power main pipeline and individual military products through precipitation for many years.

The main products of Sanzhou nuclear power include: nuclear power main pipes, nuclear grade pressure vessels, heat exchangers, nuclear grade castings and forgings and special materials for nuclear power; civil pipeline equipment and pipe fittings, castings and forgings; military products.

The China Nuclear Power Institute, now the second largest shareholder of Sangzhou Nuclear Power, has formed a scientific research and production system for nuclear power engineering design, integrated supply of nuclear steam supply system equipment, reactor operation and application research, and has designed and built seven nuclear facilities, including China's first high-flux engineering test reactor. At present, it undertakes the engineering design and technical services of the nuclear island main system or nuclear steam supply system of the nuclear power project. The Nuclear Power Institute continues to provide strong market support for Sanzhou Nuclear Power to obtain orders for nuclear power units.

Sanzhou nuclear power has a high market share in the second generation of nuclear power. Sangzhou Nuclear Power has the qualification of manufacturing first-class nuclear equipment, and is the first domestic enterprise with the manufacturing performance of nuclear power main pipeline. it has accepted nearly 60% of the second-generation and second-and-a-half generation main pipeline orders in China, and successfully delivered 15 sets of nuclear island main pipeline (including prefabricated).

Sanzhou Nuclear Power is the only supplier of military products it currently provides. The military equipment technology of Sanzhou nuclear energy was introduced from France after digestion, absorption and independent innovation. It has successfully developed an important military equipment and related products by using the domestic pioneering process of "centrifugal casting + forging (rolling)". And through the appraisal of the Naval equipment Department, it has provided a large number of key military equipment and related products for a number of military projects and national defense experimental reactors.

2) Nuclear power products and civilian products are the main sources of profits of Sanzhou nuclear power at present, and the military business has started a high growth.

After the suspension of nuclear power approval in 2011, orders for nuclear power products in Sanzhou decreased, and the gross profit of nuclear power contribution in 2013 and 2014 was basically maintained at 3000-35 million. More than 50% of the annual profit growth of Sanzhou Nuclear Power mainly comes from the undertaking of Sanzhou Nuclear Energy for high value-added civil pipelines and pipe fittings, and the gross profit of civil products contribution to the main business has increased from 16% in 2013 to 38% in the first 10 months of 2015. In addition, the military business also rose from a small share in 2013 to 16% in the first 10 months of 2015.

3) the restart of nuclear power opens the market space, and the qualification of the third generation nuclear power of Sanzhou Nuclear Power is about to be obtained, which is expected to rapidly increase the market share of the main pipeline of nuclear power. Nuclear power forgings are expected to become a new growth point.

According to the plan, 6-8 new nuclear power units will be built every year after 2015, and all the new units will be third-generation nuclear power units such as Hualong No.1 and AP1000. The market space of the main pipeline will reach 600-800 million yuan. at present, the main suppliers of the main pipeline of nuclear power are Sanzhou Nuclear Power and Taiwan Strait Nuclear Power. In addition, through independent research and development, Sanzhou Nuclear Energy has successfully developed nuclear grade forgings for nuclear grade forgings, straight pipes, tees and main pipes of nuclear power. If nuclear forgings are added, the market space for nuclear power products provided by Sanzhou Nuclear Power is equivalent to 2-3 times that of the main pipeline.

Sanzhou Nuclear Power has jointly developed the third-generation nuclear power main pipeline with Xinye Hi-Tech, and at the same time, it has jointly developed the third-generation nuclear power main pipeline, wave tube, super steel pipe, pipe fittings and other related equipment represented by "Hualong No.1".

The State Nuclear Safety Administration has accepted the application for Sanzhou Nuclear Energy to increase the manufacturing qualification of three generations of main pipelines. We expect that the qualification of Sanzhou Nuclear Energy will be approved in the second quarter. After the qualification is approved, Sangzhou Nuclear Power is expected to rapidly increase its market share. It is estimated that it will receive orders for 2-3 main pipelines every year, with an income of nearly 200 million yuan.

The acquisition of the third-generation qualification will also increase the sales of nuclear-grade forgings in Sanzhou Nuclear Energy. According to the company's fixed increase plan, based on the initial intention reached between Sanzhou Nuclear Energy and strategic partners, it is expected that there will be 150 million-200 million yuan in orders for nuclear-grade forgings in 2016, and nuclear-grade forgings will become a new growth point for Sangzhou Nuclear Energy.

4) the military business market is expected to maintain a growth rate of 30% and 40%.

In addition to the existing military products, Sanzhou Nuclear Power undertakes the military equipment pipe development project chaired by Beijing Iron and Steel Research Institute, and is responsible for the development of smelting and hot-rolled pipes. The related products have been completed and delivered to a designated unit for follow-up processing. At the same time, Sanzhou Nuclear Energy participated in the research and development project of a key military equipment trial part chaired by the China Nuclear Power Institute. The project is developed competitively by Sanzhou Nuclear Power and Taiwan Strait Nuclear Power. Sanzhou Nuclear Power has completed the forging and roughing of the first trial part.

According to the Sanzhou Nuclear Energy Business Plan, military orders are expected to reach 180 million-230 million yuan in 2016. after 2017, the demand for high-quality special pipes and pipe fittings in the military market is growing rapidly, and the market is expected to grow at an annual rate of 30% and 40%.

3. Commitment performance is basically determined on the basis of orders, and 2016 performance may exceed expectations. A high proportion of incentive policies encourage high growth commitment performance to be realized.

According to the acceptance of orders and planning by Sangzhou Nuclear Power, its shareholders Sanchou Special Management and Huaxia Life Insurance have pledged to achieve a net profit of not less than 121 million, 193 million and 282 million yuan from 2016 to 2018. Among them, the revenue of nuclear power is 256 million yuan, that of military products is 170 million yuan, and that of civilian products is 135 million yuan, totaling 561 million yuan. On the other hand, Sanzhou Nuclear Power has signed an order of 375 million yuan, followed up and signed a conditional order of 68 million yuan. We believe that the forecast of the committed performance of Sanzhou Nuclear Power is basically based on orders with strong certainty, and there will be new orders in the future, especially military orders are generally obtained in batches, so there is a possibility that the performance in 2016 will exceed expectations.

According to the plan, if the cumulative net profit of Sangzhou Nuclear Power exceeds the promised profit, more than 40% of the cumulative net profit will be rewarded in cash to the main managers and core technical personnel of Sangzhou Nuclear Power at that time, but the total reward amount shall not exceed 200 million yuan. On the one hand, it contributes to the stability of the core staff, on the other hand, it contributes to the achievement of performance.

The subsidiaries of the three major nuclear power operators will all become shareholders. Zhongguang Nuclear Capital, China National Nuclear Fuying and China Nuclear Power Institute are subordinate units of China Guangdong Nuclear Power, State Nuclear Power and China Nuclear Power Corp. through this additional offering, they all become shareholders of the company. it reflects the recognition of the status of Sanzhou nuclear power products by nuclear power operators, and is also conducive to the acquisition of follow-up orders.

4. "increase the holding" rating. Without considering the additional issuance, the company is expected to have EPS0.03 yuan, 0.03 yuan, 0.03 yuan in 2015-2017. We are optimistic about the high growth of the company's proposed acquisition of Sanzhou nuclear power and military business, covering it for the first time and giving the company an "overweight" rating.

5. Risk hint: the market is systemic risk, the non-public offering is uncertain, the nuclear power qualification is not obtained, and the order acquisition is lower than expected risk.