Event Summary:

The company announced today that the wholly-owned subsidiary Yuanwang Valley Investment Management Co., Ltd. and Shenzhen Maixing Investment Management Co., Ltd. intend to jointly invest in the establishment of an equity investment fund for the Internet of things-Shenzhen Maixing Yuanwang Grain Network Investment Enterprise. The overall size of the fund is 100 million, including 69.93 million yuan for Yuanwang Valley investment, 29.97 million yuan for Maixing investment and 100000 yuan for Xinggu management. In addition, the company also plans to work with Elite Times Fund Management Co., Ltd. to set up a professional investment management company for Internet of things-related industries, with a registered capital of 10 million yuan. To help Yuanwang grain Internet industry integration for the purpose of initiating the establishment of Internet of things industry mergers and acquisitions.

Main points of investment:

1. Industrial integration and mergers and acquisitions are the only way for the company's future development. This signing of a cooperation framework agreement with McStar Investment to jointly fund the establishment of the Internet of things investment fund is one of the important measures for the company to promote its extension development strategy.

In terms of scale, if joint methods such as cooperative capital allocation (shares) are considered, the maximum market capitalization of the target that can be covered will reach hundreds of millions, which can basically cover most of the small and medium-sized system integrators in the field of RFID fine molecules in the world, and the space is very large. The cooperation with the Elite Age Fund may be faced with the integration of some enterprises in the RFID industry, and the establishment of two IoT investment enterprises means that the company will firmly rely on the capital market to quickly complete the M & An integration of the missing elements in the IoT industry chain in the future.

RFID industry, because the threshold of manufacturing technology is not high, and there are many downstream subdivisions, so the leading power is in the hands of system integrators in various sub-industries.

Enterprises must control the downstream system integrators in order to occupy the market, and the speed and efficiency of independent expansion is low, which determines that M & An is the only way for enterprises in this industry to become bigger and stronger.

When the company's major asset restructuring terminated in the first half of this year, it left a foreshadowing in the announcement: "the company intends to consider other ways to promote related matters." we speculate that the Internet of things investment fund established this time is probably one of the ways to push forward, and the follow-up progress of the investment fund should be paid attention to.

two。 The increase of senior executives shows the confidence of management.

With the adjustment of the market, the company's share price fell more. The company's executives Lu Hong, Cheng Shiyi, Gu Qing, Yang Qiongfang and Chen Changan increased their holdings in a total of 712800 shares on June 29 and July 6, respectively. In the medium to long term, Yuanwang Valley is obviously still at the bottom of the inflection point. From the perspective of large industry dimension, the application fields of RFID can be divided into access control, asset management, supply chain management and transportation, etc. At present, the main battlefield of Yuanwang Valley is the electronic car number of the railway and the asset management of the library. It is only a small corner of the mountain in the overall application of RFID, and the space and market that can be expanded are still very large.

At present, China's RFID has not yet formed a mature market, and the overall permeability is less than 5%, while Yuanwanggu is the only RFID manufacturer in China that can compete with European and American brands in the overseas market with its own brand (non-OEM). It has the layout of the whole industrial chain, such as chip design, antenna manufacturing, overall processing, anti-interference testing, downstream system integration and so on. Whether in the competition with international well-known enterprises or other domestic RFID-related enterprises can win their own place. We believe that the recent increase in the holdings of a number of senior executives demonstrates the management's strong confidence in the future development of the company. After the return of the old chairman last year, the Liu Ruiyang case of the high-speed railway in previous years has been basically finalized. The negative impact of future events will gradually fade, and 2015 will be a new start for the company.

3. Thinking train-controlled listing will provide a larger increase in market capitalization for the company.

The company will go public in the near future (according to the thinking announcement, it would have been scheduled to list in July if IPO had not been temporarily suspended this week), and the company holds 2400 million shares, accounting for about 20 per cent of the total shares before the listing. According to thinking that controls last year's net profit of 238 million, and comparable companies in A-share listed companies: brilliant Technology, Century Ruier, Dinghan Technology, and Jia iFLYTEK Hong, the four companies' EPS last year corresponds to about 75 times the current average static PE (based on the recent deep correction on July 6, it is already quite conservative) Yuanwang Valley's holdings in mind control should have a market capitalization of at least 30-4 billion after listing. If mind control has better growth this year, the valuation market value will be higher by dynamic PE, but considering the current market environment, we use last year's static PE to make estimates. 30-4 billion accounts for 1/3 of the company's current market capitalization of 11 billion. We believe that assuming that the current market capitalization contains expectations of mind control, the remaining market capitalization after deducting the increment of mind control is already quite cheap. This round of adjustment is an excellent opportunity to lay out the company.

4. Upgrade Yuanwang Valley rating to buy

We estimate that the company's EPS for 15-16 years will be 0.102 yuan and 0.190 yuan respectively, and the company's current share price will be valued at 145.38 times this year's EPS and 78.36 times next year. The company's future development of mergers and acquisitions and integration is expected to be strong, although one of the reasons for the sharp increase in performance in the first half of the year is the sale of Kunpeng Communications, but in the past three years, the company has undoubtedly been at the inflection point of growth, and the company's stock price has declined a lot recently, but we very much recognize the company's industry status and the vertical layout of the industrial chain. The company has a bright future in the RFID segment, upgrading the company's rating to buy.

Risk Tips:

The progress of 1.RFID promotion in China is lower than expected.

two。 The profit level of railway electronic car number products continues to decline due to the impact of the restructuring of the railway bidding system.

3. The progress of M & An integration in the field of RFID is lower than expected.