Key points of investment:

Incident: The company announced that the actual controller, Mr. Yang Jianxin, and the co-actors signed an agreement with Guangzhou Development Zone Emerging Industry Investment Fund Management Co., Ltd., to transfer 6.55% of the shares held to Xinxing Fund. The transfer price was 9.7 yuan/share, with a total transfer price of 990 million yuan. At the same time, Mr. Yang Jianxin and his co-actors plan to entrust the exercise of voting rights and other rights corresponding to holding the remaining 15.5% of the shares to the Emerging Fund. After the completion of this plan, Guangzhou Xinxing Fund will become the actual controller of the company.

With the background of state-owned assets, the Guangzhou Emerging Fund is expected to support the development of cross-border communication through practical actions, and it is optimistic that the company will break out of the bottom of its operations. 1) State-owned assets background and rich resources. The actual controller of the Xinxing Fund is the Guangzhou Development Zone Management Committee. We believe that after this transfer is completed, the nature of the company will change to a state-owned holding company, and the financing environment will improve substantially. As a hub for the cross-border e-commerce industry, Guangzhou has strong support and is expected to push the company back to healthy development in the medium to long term. 2) Emerging funds are expected to provide full support in the future. After the transaction is completed, all parties will stimulate the initiative, enthusiasm and creativity of the management team while ensuring the stability and independence of the management team of the listed company. The Emerging Fund will give full play to its platform advantages, further enhance the company's financing capacity and market influence, achieve complementary advantages, and promote the company's rapid and healthy development. 3) Initial support is in place. The company announced that the Emerging Fund provided a total loan of 400 million yuan to the company. The loan period was 6 months to supplement the liquidity capital for daily operations and repay bank loans. We believe that during the e-commerce peak season in the fourth quarter of 2018, the company was affected by fluctuations in bank loans, the capital required for operation was tight, and business development was sluggish. Once this financial support is in place, it is expected to provide strong support for this year's peak season preparation and marketing promotion, pushing the company out of the bottom and regaining strength.

As an industry leader, the company has a strong advantage of scale, and there is a foundation for returning to growth in the future. 1) Accumulate the size of the customer base on your own website. In the first half of the year, the Gearbest website was launched in 23 countries, and the number of registered users reached 45.3 million. The number of registered users on the ZAFUL website reached 28.22 million. 2) Leading logistics and warehousing construction volume. In the first half of the year, the company's warehousing area reached 400,000 square meters, the number of overseas warehouses was 67, and more than 60 dedicated logistics lines were built. The delivery of the Zhaoqing Logistics Park pushed Global Tesco to centralize the logistics business, further optimize the advantages of warehousing costs, achieve automatic sorting of goods and packages, and improve the efficiency of the logistics system. 3) Private brands are well cultivated. The company operates nearly 200 strategic brands, core brands and supporting brands. The revenue from its own brands reached 3.66 billion yuan, accounting for 40.9% of total revenue.

Signed contracts with Qihoo 360 and CUBOT to deepen strategic cooperation and accelerate the brand's overseas expansion. On September 17, Global Tesco held a signing ceremony with 360 and CUBOT to comprehensively deepen strategic cooperation. The cooperation includes: 1) Cooperation 360 to develop intelligent hardware products. The two companies have been cooperating since 2018, and are striving to enter overseas markets through cooperation in categories that have strong overseas market demand, such as sweepers, smart doorbells, and smart cameras. Since the partnership, 360 has successfully created a popular model represented by the 360 S series sweeper through cooperation on the Gearbest platform and expansion through third-party channels. 2) Cooperated with CUBOT mobile phone products, with sales exceeding 100 million. CUBOT is the backbone of the cross-border e-commerce mobile phone industry. It has ranked first in the global Tesco mobile phone category for three consecutive years, with sales exceeding 100 million yuan, making it the top 10 brand on the Gearbest platform. The brand now has multiple service touchpoints around the world and large after-sales maintenance centers in Europe. After the signing of this deepening cooperation agreement, the two sides will focus and expand their respective superior resources, jointly explore overseas markets, and accelerate the promotion of brands going overseas.

The company is a leader in the industry and has an operating advantage. It is optimistic that many parties will make efforts in the future to push the company out of business adjustments and return to growth. The Guangzhou Emerging Fund provides comprehensive support. The two sides complement each other's strengths, and are optimistic that the company will return to the development channel. At the same time, the company continued to upgrade and improve logistics and warehousing, big data technology, its own product brand, and supply chain system in 19 years, gradually improving the pressure on business quality brought about by extensive growth in the early stages. We maintain our profit forecast for 19-21. We expect the EPS for 19-21 to be 0.60/0.67/0.76 yuan, corresponding to 15/13/12 times PE for 19-21, respectively, maintaining the “increase in holdings” rating.