I. Incident Overview
Recently, the company issued an announcement: On October 22, 2017, Guangzhou Oukang's shareholders Feng Xijun, Xin Rentai, and Xin Longxiang signed a “Letter of Intent to Acquire Shares”. The company will complete the acquisition of 100% of the target company's shares in cash, tentatively set at RMB 210 million.
II. Analysis and Judgment
Plans to acquire Guangzhou Okang to continuously accelerate the deployment of the 5G market
The company plans to acquire 100% of the shares held by Guangzhou Oukang shareholders Feng Xijun, Xin Rentai, and Xin Longxiang. The acquisition will be completed in cash and is tentatively estimated at 210 million yuan. In terms of performance commitments, net profit after tax in 2017 was not less than 28 million yuan, the total net profit for the two years 2017-2018 was not less than 60.2 million yuan, and the total net profit for the 2017-2019 three years was not less than 97.23 million yuan. Guangzhou Oconn is mainly engaged in communication network engineering and maintenance business. It has the “Communication Engineering Construction General Contractor Level 1” qualification, and has strong collaboration with the company, which is in line with the company's current “integrated communication technology service provider” positioning and 5G market layout. At the same time, Guangdong Province is the largest and most technologically advanced market for domestic communication technology services. After this acquisition, the company will enter the Guangdong communication technology service market. Finally, the completion of this acquisition will significantly increase the company's future net profit, which is in line with the interests of all shareholders of the listed company.
Network maintenance and network optimization services accelerate the expansion of domestic and foreign markets, and achieve technological innovation by investing in R&D
The company continues to maintain its market leadership in Fujian, while continuing to expand and gain a certain market share in Guizhou, Guangxi, Jiangxi, Chongqing and other provinces. According to the three-quarter report released by the company, the company achieved revenue of 283 million yuan, an increase of 15.40% over the same period last year, and its performance increased steadily. In overseas markets, the company closely followed the “Belt and Road” development path of equipment suppliers such as ZTE, increased resource investment in Southeast Asia, and established a new Sri Lankan subsidiary. At the same time, the company continues to track industry technology development trends, increase investment in R&D, introduce high-quality communication talents, provide technical support for the development of the company's various businesses, and achieve continuous innovation in the company's technology. In 2016, the company added software copyright for 3G/4G mobile communication optical network characteristics centralized monitoring and management platform V1.0, customer presentation system V1.0 based on big customer data, LTE-FDD wireless test data management platform application software V4.0, and power-intensive network management system software V2.0.
Continuously win bids for wireless ring network equipment procurement projects to accelerate the expansion of the wireless self-networking market
The self-organizing network equipment independently developed by the company has made important breakthroughs in market expansion. It has successively won bids for the China Mobile Emergency Communications Procurement Project (10.53 million yuan) and the Fujian Armed Police Corps Conference Communications Security Project (2.93 million yuan). The two projects that have won the bid account for about 5% of the company's operating income, laying the foundation for the company's subsequent development in the self-networking market. Among them, China Mobile's emergency communication procurement project is the first case in the country where wireless self-networking technology is applied to communication operators' 2G/3G/4G base stations to transmit and interrupt emergency repairs, emergency command and communication for disaster relief and rescue; the Fujian Armed Police Corps conference communication security project provided communication security measures for a large-scale conference for the Fujian Armed Police Corps, which accumulated customer resources and project experience for the company. Based on existing communication network technology services, the company will increase resource investment in self-networking services and expand the business to ICT, the Internet of Things and other related fields.
III. Profit Forecast and Investment Suggestions
The 2017-2019 EPS is expected to be 0.65, 0.83 and 1.04 yuan respectively, and the corresponding PE is 64.86 times, 50.80 times, and 40.54 times, respectively. Since the company is a new stock, the valuation level is high. The company expanded from regional locations to the whole country and overseas. Given the company's expectations of extended mergers and acquisitions, a certain valuation premium was given, giving the company 85-90 times PE in 2017. The reasonable price range for the next 12 months was 55.3-58.5 yuan. Maintain a “Highly Recommended” rating.
4. Risk warning:
Competition for communication network management services is fierce; the ban on restricted shares has been lifted; and investment in raising capital has fallen short of expectations.