Weisheng announced that the Shanghai Stock Exchange has accepted applications for Weisheng Information Technology (Weisheng's communications and fluid AMI business) to be listed on the Science and Technology Innovation Board. This is in line with expectations. We think this is a major breakthrough since Vivo announced its split in January 2017, but the exact timing is still uncertain.
Weisheng Information Technology is engaged in two businesses: (1) data acquisition terminals and (2) water, gas, and heat meters. As of the date of the announcement, Viosheng owns 65% of Viosheng Information Technology's shares. According to the draft prospectus, Weisheng Information Technology provides an IoT architecture that provides solutions. Its products cover different levels, including sensors, networks, data and applications.
We believe the spin-off will unlock the value of non-grid-related businesses, and that the dilution effect of the spin-off is manageable. We are optimistic about Viosheng's prospects, as we believe it will continue to grow, mainly benefiting from more favorable industry dynamics and a more diverse customer base.
We maintain our “buy” rating with a target price of HK$5.43 based on a price-earnings ratio of 13x 2019.
The spin-off is progressing
Weisheng announced that the Shanghai Stock Exchange has accepted applications for Weisheng Information Technology (Weisheng's communications and fluid AMI business) to be listed on the Science and Technology Innovation Board. This is in line with expectations. We think this is a major breakthrough since Vivo announced its split in January 2017, but the exact timing is still uncertain. Weisheng now owns 65% of Weisheng Information Technology's shares, and Weisheng is currently planning to issue new shares of Weisheng Information Technology in a spin-off. According to the draft prospectus, Weisheng Information Technology plans to issue no more than 150 million new shares to raise RMB 605 million, but the exact scale of issuance is yet to be determined. It is expected that Weisheng Information Technology will continue to be a subsidiary of Weisheng after this proposed spin-off is completed.
Weisheng Information Technology engages in two businesses: (1) data collection terminals; (2) water, gas, and heat meters related to IoT architectures. The company's product range covers different levels, including sensors, networks, data and applications. According to the draft prospectus, Weisheng Information Technology's top five customers in 2018 were: State Grid, China Southern Power Grid, Weisheng Holdings, Changsha Water Supply, and ISK Raemeco Energy Measurement, which together accounted for 64.78% of total turnover in 2018. The top five clients' share of the company's revenue fell from 76.42% in 2016 to 64.78% in 2018. The company's industry coverage has expanded from utilities such as electricity, water, and heat to smart city applications such as smart fire alarms and smart street lights. The company's net profit in 2018 was RMB 177 million, up from RMB 149 million in 2017 and RMB 80.5 million in 2016. The company's turnover also increased from RMB 680.3 million in 2016 to RMB 1,0386 million in 2018. In 2016-2018, the company's R&D expenses accounted for about 7% of total revenue.
Weisheng Holdings' other business segments will achieve significant growth
We believe that as national power grids promote the development of ubiquitous power IoT, the market demand for high-end measuring equipment will increase. National Grid is likely to release new standards for measuring equipment and communications in 2019, which will create growth momentum for Weisheng Holdings' other business segments. Under the energy internet architecture, relevant data and operation layers will be developed, and Vivo will benefit by providing measurement equipment and communication ICs and systems with communication and sensor functions. The upgrading of power transmission standards will drive Weisheng's next phase of growth. We maintain our “buy” rating with a target price of HK$5.43 based on a price-earnings ratio of 13x 2019.