Events:

Huasheng shares plan to increase 258 million shares plus 3.465 billion yuan in cash at 13.42 yuan per share, with a total price of 6.93 billion yuan to buy 100% shares in Guosheng Securities, and 478 million shares at 14.5 yuan per share to raise 6.93 billion yuan in matching funds.

Comments:

1. Enter the securities business, take a key step in the transformation. The company's original main business is home appliance wiring components, affected by insufficient demand in the home appliance market, rising labor costs, and intensified competition in the industry, the company's sales revenue and profit margins have both declined, resulting in a 90% drop in net profit in the first three quarters compared with the same period last year. In the face of the dilemma of limited profit space and insufficient stamina for development of the original business in the future, the company intends to make a comprehensive transformation and enter the securities industry with the help of this transaction, so as to establish the foundation for the follow-up intensive cultivation to build an Internet financial control platform. After the completion of the transaction, the headquarters of the listed company will be upgraded to a holding management platform, Guosheng Securities will operate independently as a subsidiary of the listed company, and securities will become the main business of the company.

two。 Replenish the capital of Guosheng Securities and create a new profit growth point. The net profit of Guosheng Securities in 2013 / 2014 / 2014 / 2015 (January-August) is about RMB 278 million, with a good profitability. However, limited by financial indicators such as net capital and net assets, some capital intermediaries and innovation businesses can not be carried out on a large scale, resulting in a greater dependence on income on brokerage business. This replenishment of capital will strongly support its channel expansion and the development of innovative businesses such as finance, fixed income and over-the-counter business.

3. The development strategy is now in its embryonic form, and the comprehensive financial control can be expected in the future. After the completion of this transaction, the original manufacturing assets sank to the subsidiary level, and Huasheng Investment, an investment entity focused on the Internet and finance, was set up to form three major business modules: finance, investment and manufacturing. Listed companies will manage securities-based business modules in the form of holding. Long-term planning is to gradually establish a financial service system covering securities, insurance, investment, trust, banking and other businesses through epitaxial mergers and acquisitions and endogenous development.

Profit Forecast:

The company will complete the transformation of its main business through this acquisition, and its profitability will be greatly improved. After the completion of the reorganization, the net assets per share will reach 12.79 yuan. With reference to the valuation of comparable listed securities firms, the securities business part is given 2-2.2 times PB, and the original business is given 2.5 times PB, corresponding to a reasonable price of 26.4-28.6 yuan.

Risk Tips:

The securities market fluctuates and the competition in the securities industry intensifies.