Key points of investment
Incident: The company announced that it intends to use its own and self-raised capital of 940 million yuan to acquire 100.00% of the shares of Hangzhou Xuhang Network Technology Co., Ltd. held by Pingxiang Youshu Enterprise Management Partnership (Limited Partnership), Shanghai Youshu Investment Management Partnership (Limited Partnership), and Zhoushan Youtai Investment Partnership (Limited Partnership). After the acquisition is completed, Xuhang Network will become a wholly-owned subsidiary of the Company. The audited net profit of Xuhang Network at the end of 2016 was 42.6902 million yuan, and the 2017-2019 performance compensation agreement promised net profit of no less than 70 million yuan, 91 million yuan, and 113.75 million yuan respectively.
Comment:
Since 2015, the company has continued to promote business transformation, gradually completing the original real estate, non-ferrous metal trading, printer manufacturing and other businesses. After acquiring companies such as Shenzhen Xingfei Technology, Shenzhen Dongfang Tuoyu Technology, and Zhongke Rongtong Internet of Things Technology, it has achieved transformation into the fields of mobile Internet, Internet of Things, and security.
This time, the company once again aimed to acquire manufacturers of mobile Internet precision marketing solutions, which enabled the company to gradually improve the puzzle of the industrial chain from the hardware, system, and application levels.
The company successively acquired Xingfei Technology and Dongfang Tuoyu in 2016, achieving an industrial chain layout in the smart terminal ODM manufacturing business. It has three production bases in Huizhou, Zhengzhou and Wuhu, covering mobile phones and industry terminals (smart tablets, logistics terminals, law enforcement instruments, satellite communication terminals, intelligent monitoring systems, smart home products, virtual laser touch, etc.). It is particularly noteworthy that in terms of logistics terminals and VR mobile phone products, the company formed mass production cooperation projects with leading suppliers in the industry, which became the main growth point for the company's business growth.
The company completed the project of issuing shares and paying cash to acquire Zhongke Rongtong IoT Technology Wuxi Co., Ltd., at the end of December 2016. Zhongke Rongtong is an overall anti-intrusion solution provider with the core fields of administration of justice, border security and public security. It is mainly engaged in R&D, production, sales and provision of corresponding technical services for software and hardware products related to anti-intrusion systems, frequency monitoring and IoT intrusion prevention applications. As global terrorism and the political situation in surrounding regions continues to be turbulent, there is broad scope for future industry applications of perimeter intrusion prevention systems.
Investment advice: We forecast the company's earnings per share from 2017 to 2019 to $0.49, 0.66 and $0.73, respectively. The return on net assets was 10.3%, 12.4%, and 12.4% respectively. A recommendation to increase holdings was given. The target price for 6 months was 14.50 yuan, which is equivalent to the dynamic price-earnings ratio of 29.6, 22.0 and 19.9 times from 2017 to 2019.
Risk warning: The pace of integration after asset restructuring fell short of expectations; market channel development fell short of expectations; competitive pressure in the industrial market affected the company's profitability expectations;