The company plans to acquire a 49% stake in Zhihang New Energy with 1.08 billion yuan in cash. After this acquisition, Zhihang New Energy will become a wholly-owned subsidiary of the company. We believe that there is a large expectation gap in the company's power battery business and maintain the buy rating with a target price of 38.00 yuan.
Support the main points of rating
With the acquisition of the remaining stake in Zhihang New Energy, the power battery business layout goes a step further: the company signed an agreement with Zhihang New Energy and its shareholder Mr. Zhou Fazhang, and the company intends to acquire Mr. Zhou Fazhang's 49% stake in Zhihang New Energy for RMB 1.08 billion. After the completion of this acquisition, Zhihang New Energy will become a wholly-owned subsidiary of the company, the company's power battery business layout is further, and the company's performance is expected to increase significantly.
Zhihang New Energy is doing well, and the performance of power batteries began to release: according to the data of China Chemical and physical Power Industry Association, Zhihang New Energy ranked fourth in electric vehicle battery installation in September; Zhihang New Energy achieved operating income of 1.103 billion yuan in the first three quarters and a net profit of 201 million yuan. Zhihang New Energy currently has a production capacity of 10,000 tons of cathode materials, a daily production capacity of 1 million 18650 lithium battery cells (about 3.5GWh) and a complete production line of PACK system. The main customers are Zhongzhi Automobile, Shu Chi bus and so on. The performance commitments of Zhihang New Energy from 2016 to 2018 are 136 million yuan, 380 million yuan and 420 million yuan respectively, of which 2016 has been completed. According to the future performance commitment, this acquisition is valued at about 5.8x 2017PE and 5.2x 2018PE, with a low dynamic valuation.
The large increase of the company's middle and senior management staff shows confidence: the company's middle and senior management staff increased their holdings by 1.015 billion yuan in late September 2017, demonstrating their firm confidence in the future development of the company.
Main risks faced by rating
The new energy vehicle policy falls short of expectations; the power battery business falls short of expectations.
Valuation
Under the assumption that the remaining equity of Zhihang New Energy will be injected into the listed company in 2018, we expect the company's earnings per share from 2017 to 2019 to be 0.82,1.45,1.61 yuan respectively, and the price-to-earnings ratio before the corresponding share price will be 35.0,19.9,18.0 times, respectively.