Develop the two main industries of “comprehensive utilization of water resources” and the “health consumption industry”.
Dahu Co., Ltd. is the first listed company in the country with a “surface capitalization” model. Its main business is comprehensive utilization of water resources. It has about 1.8 million mu of long-term aquaculture use rights in 12 Great Lakes waters and tidal flats. It features the stocking of ecological freshwater products, and also engages in aquatic product processing, wine industry and pharmaceutical trade, while actively developing the “big consumption” and “big health” business.
The acquisition of condom marketing giants improved sales channels and laid the foundation for a new pattern.
The company plans to purchase 51% of Tibet Shenwan Investment's shares through a combination of issuing shares and paying cash. The total transaction price is 1,040 million yuan. At the same time as issuing shares and paying cash to purchase assets, it is proposed to raise no more than 437,800 yuan of supporting capital from no more than 10 specific target non-public shares. The number of shares issued does not exceed 20% of the total share capital of 481,237,188 shares of Dahu Co., Ltd. prior to this issuance, or 96,247,437 shares. After the transaction is completed, the company will achieve “comprehensive utilization of water resources”
The development pattern of the dual main business with the “health consumer industry” is in line with the company's development strategy. Trading of the company's shares will resume when the market opens on May 7.
Target company: Tibet Shenwantou, whose wholly-owned subsidiary Wanseido is the general distributor of Okamoto condoms in mainland China.
Manseido is the general distributor of Japanese Okamoto Corporation's condom products in mainland China. It is mainly responsible for brand operation and sales management of Okamoto condoms and peripheral products in China. Headquartered in Shenzhen, five major operation centers have been established in Shanghai, Beijing, Guangzhou, Chengdu and Wuhan, and sales are aimed at the national market. Shanghai and Shenzhen each have warehouses, with a total storage area of over 6,500 square meters. From January to September 2017, Wanshengtang's sales revenue was 567.4962 million yuan, accounting for more than half of the total revenue of Dahu Co., Ltd. in '17.
We believe that the acquisition of Wanshengtang by Dahu Co., Ltd. will achieve resource integration and synergies in the “big consumption, big health” industry. Prior to this transaction, Dahu Co., Ltd. had already formed businesses including the production and sale of aquatic products, pharmaceutical trade, and liquor. It had its own aquatic products, liquor and pharmaceutical brands, and had developed from aquaculture and sales to a product processing and brand management company in the field of “big consumption, big health”. After the transaction is completed, Wanshengtang, with its rich brand operation experience and stable online and offline channels, combined with Dahu Co., Ltd.'s extensive business and high-quality financing platforms, may open up new market areas and channels for Dahu Co., Ltd. in the “big consumption, big health” industry, increase market share, expand the influence of the industry, and bring new and sustainable profit growth.
If this acquisition transaction of Tibet Shenwan Investment is successfully completed, based on the performance promises of the target company, we expect the profit forecast of Dahu Co., Ltd. in 18-20 to be 110 million/130 million million/160 million yuan; the corresponding EPS will be 0.18/0.21/0.26 yuan. We are optimistic about the profit growth brought about by Dahu Co., Ltd.'s own business combined with the target company's sales channels and brand building capabilities. Comparing the average valuation of listed companies that specialize in wholesale and retail of pharmaceuticals and medical devices at 42.18 times, we carefully gave the company's 19-year exam preparation performance corresponding to 38 times PE, a corresponding target price of 7.98 yuan. For the first time, we gave it a “hold” rating.
***Note: If the acquisition fails, based on the exam preparation performance of Dahu Co., Ltd., we predict the safety margin that the company can provide is: net profit of 9.12 million/12.55 million/15.57 million yuan, and the corresponding EPS is 0.02/0.03/0.03 yuan.
Risk warning: acquisition progress falls short of expectations, risk of failure to pass the audit, risk of substitution of similar products