Events:
The company issued an announcement and resumed trading on October 12; at the same time, it issued a revised draft of additional issues. it is proposed to purchase a total 100% stake in Shuanglin Investment held by the controlling shareholder Shuanglin Group and Ninghai Jisheng, Shanghai Huapu and Ninghai Jinshi at a price of 2.3 billion yuan, of which about 1.62 billion yuan is paid by issuing shares. At the same time, it is proposed to raise supporting funds in the form of additional issuance not exceeding about 740 million yuan.
Comments:
100% injection of assets such as DSI to create a scarce target for automatic transmissions. The company intends to acquire the target Shuanglin investment is currently a research and development, production, sales as one of the rare third-party automatic transmission supplier. Its 100% holding DSI, formerly a transmission R & D and production company with a history of more than 80 years, is mainly responsible for automatic transmission research and development, matching and calibration business. 100% holding Jisheng in Hunan and Di Sheng in Shandong are the main production platforms. Shuanglin Investment mainly makes continuous integration of business and undertakes unified management, R & D functions and foreign procurement of raw materials, sales and other responsibilities. The products cover 4-speed and 6-speed front and rear drive and full-drive high-torque automatic transmission. M04 rear wheel drive products, M05 lightweight transmission and M06 hybrid transmission are under continuous development and optimization, the production capacity has reached 600,000 units per year. Automatic transmission has always been the core component for the domestic parts system to conquer and achieve import substitution. After the completion of this acquisition, it will become the target of the scarce automatic transmission in the A stock market.
The target company is supporting Geely Boyue Borey to achieve significant benefits, and new customers continue to open up. At present, the company's main mass production product is DSI 6AT, mainly supporting Geely Boyue and Borey two models. Among them, Boyue, Geely's most representative star model, has seen its sales climb since its launch at the end of March last year, selling 110000 vehicles in 2016 and more than 190000 in the first nine months of 2017, of which more than 80 percent are automatic. We expect Boyue Borey to achieve sales of 300000 vehicles in 2017 and will bring significant benefits to Shuanglin investment. At the same time, the target company is still opening up new customers, and has received orders from Lifan, Southeast, Siwei and other brands for mass production since 2017. in addition, there are fixed-point notices and letters of intent from BAIC Yinxiang, BYD, Jiangsu Jiulong and other mainframe factories. The continuous development of new customers in the future is still particularly important. The target company promises to achieve an annual performance of not less than 1.70,2.52,3.43 and 412 million yuan from 2017 to 2020, and the transaction price corresponds to 2017 committed performance PE of 13.5 times.
The new torch and Chengye will continue to provide growth impetus for the performance. The new torch is expected to continue to drive high performance growth:
1) the only supplier of Baojun 7300560, and also the supplier of high-quality independent car companies such as Changan and Geely, is expected to break into Guangzhou Automotive and Volkswagen in the future; 2) the revenue share of the third generation of high value-added wheel products is increasing rapidly. Shanghai Chengye, which the company acquired in May this year, will also bring performance increments: 1) the net profit for the first 10 months of 2014 / 2016 will be 0.54 picks, 0.60,700 yuan, and the net profit margin will be 14%, 16%, 14%, respectively, which is higher than Shuanglin's net profit margin of 9% 10%, 12% before 2016. 2) it will introduce its SAIC, Volkswagen and other vehicle customers to improve the customer structure. In addition, Deyang Electronics expects to fulfill its performance commitment (net profit of 120 million yuan) in 2017.
Investment advice:
The company's main business is stable, the product and customer structure will be improved, the intelligent driving layout will gradually fall to the ground, and the asset injection of Shuanglin Investment / DSI automatic transmission will bring new space. Without considering the acquisition, merger and IPO of Shuanglin Investment, it is estimated that the EPS of 2017 and 2018 will be 1.17 and 1.51 yuan respectively, corresponding to PE 22max 17X; assuming that the underlying company will merge and issue 64.56 million shares for the whole year of 2017 (according to the current draft), then the EPS of 2017 and 2018 will be 1.38 and 1.85 respectively, corresponding to PE 1914X Assuming that on this basis, the supporting financing is about 740 million yuan and 28.48 million additional shares are issued (at the current stock price), the EPS in 2017 and 2018 is 1.30 and 1.74 yuan respectively, corresponding to PE 20max 15X. Maintain a "buy" rating.
Risk hint: the growth rate of sales in the automotive industry is lower than expected, the performance of the company's acquisition projects is not as expected, the process of mergers and acquisitions is slow, the expansion of new DSI customers is not as expected, and the promotion of intelligent driving platform is not as expected.