Incident description:
The company announced on May 30, 2014, that it intends to purchase 100% of Yitong's shares, 60% of Jingshi Culture's shares, 100% of Bangfu Software's shares, and Manyou Culture's 85.61% shares through a non-public offering of shares to specific targets and paying cash.
Commentary:
1. The above assets total 2.8 billion yuan. The company plans to issue a total of 134 million shares to counterparties at a price of 1,368 yuan. At the same time, it plans to raise 920 million yuan of non-public shares from no more than 10 specific investors at a price of 1,231 yuan. All of the funds raised will be used to pay for the transaction. After the issuance is completed, the company's total share capital will reach 2,056 million shares. According to the agreement between the two parties, the total net profit of the underlying assets after deduction for 2014-2016 shall not be less than 228 million yuan, 304 million yuan, and 405 million yuan respectively.
2. Huawen Media is mainly engaged in media business and urban gas-related business. It exclusively owns the right to operate the “Securities Times” and “Five Newspapers and Four Magazines” of Huashang Newspaper, and is exclusively responsible for pipeline gas construction and supply in Haikou City. In recent years, the company has actively expanded into the new media business, and in 2013 it successively acquired 100% of the shares of companies such as Chenghuai Technology and Huashang Digital.
3. Each of the four companies acquired this time has strengths, covering various fields such as animation, public opinion management, and mobile video. Manyou Culture is one of the leading enterprises in the Chinese animation industry. Relying on original comics, it carries out a full range of copyright operations, digital publishing, peripheral derivatives and animation services, and has huge high-quality IP entry and platform value for the animation industry chain. Zangshi Yitong is a company dedicated to operator video services. Through cooperation with mobile TV license holders and many promotion channels, it has now become a leading provider of video content distribution and technical services for operators in China. Jingshi Culture is the second-largest elevator frame advertising company in the country after frame media in China, with more than 80,000 advertising posts. Bangfu Software is a leading supplier of public opinion monitoring solutions in China. After 8 years of market expansion, the company has obtained the choice and support of more than 700 large and medium-sized customers, and is in a leading position in terms of public opinion monitoring software platforms.
4. We believe that the company's current profit mainly comes from newspaper advertising revenue, but under the impact of new media, it is inevitable that the growth rate of the newspaper industry will slow down. After the acquisition is completed, the company's all-media content platform will rapidly expand from the original urban and financial media (Huashang Media, Times Media), radio broadcasting (Guoguang Guangrong), Internet TV (China Guangdong), online education (Chenghuai Technology), regional portals (Huashang Network, etc.) to scarce original comics and video content marketing and promotion platforms for mobile operators, effectively expanding the breadth of the company's cultural service products, increasing the company's new profit growth points, and further consolidating the company's “all-media, big culture strategy”.
5. Profit forecast: Without considering the consolidated table for now, we expect the company's earnings per share for 2014-2016 to be 0.66 yuan, 0.78 yuan, and 0.89 yuan respectively. Based on the May 29 stock price of 13.26 yuan, the corresponding dynamic price-earnings ratios will be 20 times, 17 times, and 15 times respectively, maintaining the company's “increase in holdings” rating.
6. Risk warning: The impact of new media on traditional media, and the progress of the acquisition project fell short of expectations.