occurrences
The company plans to transfer 46% of the shares of Zhejiang Furun Printing and Dyeing Co., Ltd. (including its subsidiary Zhejiang Minghe Steel Pipe Co., Ltd. within the scope of the merger) and 51% of Zhejiang Furun Textile Co., Ltd.'s shares through a public listing.
Brief review
It gradually divested traditional assets, clarified the main line of the industry, and concentrated resources to develop emerging business companies listed on the Shanghai Stock Exchange in 1997. Currently, it has formed three major business segments: Traditional+Emerging+Investment. At the beginning, the company's main business was textile printing and dyeing; in 2008, the company also indicated that steel pipe sales and processing became the company's second main business; in 2016, the company acquired Taiyi Zhishang and entered the Internet marketing field, and at the end of 2019, Furun Digital Chain and Furun Digital Gold Company were established to enter the blockchain and fintech fields. The company has been listed for 23 years and has been transformed and developed many times in line with the economic cycle. The proposed listing will divest traditional business assets and concentrate resources to develop new businesses. The room for growth is worth looking forward to.
Textile printing and dyeing & seamless steel pipes. The traditional industry is developing steadily, but the textile printing and dyeing capacity of Profit Space Co., Ltd. is 95 million meters/year. The textile printing and dyeing part is mainly carried out by the holding printing and dyeing subsidiary Furun Printing and Dyeing (holding 46% of the shares) and the textile subsidiary Furun Textile (holding 51% of the shares). In 2019, printing, dyeing, and textile subsidiaries achieved net profits of about 55 million yuan and 25 million yuan respectively, and contributed more than 25 million yuan and 12 million yuan respectively to listed companies. The printing and dyeing company has 20 years of experience in printing and dyeing, advanced equipment and comprehensive technology. In 2019, the printing and dyeing company achieved revenue of 442 million yuan, an increase of 7.4% over the previous year; achieved net profit of 55.21 million yuan, an increase of 14.8% over the previous year. The textile company has 30 years of professional experience in the production of worsted woolen wool, integrating the development, production and sale of high-grade worsted woolen fleece. In 2019, textile companies developed fashion women's clothing fabrics incorporating multiple elements, which became a new profit growth point. In 2019, the textile company achieved revenue of 218 million yuan, an increase of 5.5% over the previous year, and achieved net profit of 25.2 million yuan, an increase of about 3.6% over the previous year.
The company's seamless steel pipe business is mainly carried out by Minghe Company, which indirectly holds 51% of the shares. With a seamless steel pipe production capacity of 135,000 tons/year, Minghe Company is one of the largest seamless steel pipe manufacturers in East China. Minghe Company continues to improve product quality and formulates strict policies to promote collection and inventory removal of receivables. Affected by the decline in orders in 2019, Minghe Company achieved revenue of 754 million yuan in 2019, down 2.5% from the previous year, and achieved net profit of 33.19 million, a decrease of 40% over the previous year.
The company's traditional industrial market is fully competitive. The company's technical equipment, cost scale, and quality brand advantages form the core competitiveness, but due to factors such as escalating trade frictions, rising employment costs, and increasing environmental pressure, the profit space of the company's traditional business is limited. The divestment of traditional assets through public listing and transfer is conducive to optimizing the company's industrial structure and improving the company's profitability. If we calculate the reserve price of 360 million yuan for this public listing, it is estimated that an investment income of 129 million yuan will be generated.
The Internet marketing business grew rapidly through the restructuring and merger into the platforms of Taiyi and Tencent, and the Internet marketing business grew rapidly
At the end of 2016, the company completed a major asset restructuring and was merged into Taiyi. Taiyi pointed out that it is still mainly engaged in the Internet marketing and big data service industry. Among them, senior managers have been working in the fields of big data, the Internet, digital marketing, etc., and have a deep understanding of the development of the Internet industry at home and abroad. Taiyi pointed out that it has already formed a whole industry chain service for big data analysis and internet marketing, established a joint venture with the National Information Center to establish Guoxin Taiyi, and signed a strategic cooperation agreement with Huawei, leading the industry in technical capabilities.
Starting in August 2018, Taiyi Index began to get involved in the Internet marketing service business of Tencent Advertising, Today's Headline, and Douyin. 2018Q4 achieved a significant increase in revenue from the platform business in 2019 and above. Among them, Douyin platform's revenue increased 197% year-on-year to 360 million, Tencent's advertising platform increased 203% to 301 million, and today's headline platforms increased 182% to 830,000. The revenue of the above three platforms accounted for 49% of Taiyi's revenue in 2019.
The revenue of the 2017-2019 Taiyi Index was 69/133/1.68 billion, respectively, and the three-year CAGR was 56%; the realized net profit was 0.95/144/87 million respectively.
Invest in the establishment of digital chain and digital gold subsidiaries to complete the three major emerging business layouts
The company issued an announcement in December 2019 to invest 10 million yuan to establish Zhejiang Furun Digital Chain Technology Co., Ltd.; it plans to invest 50 million yuan to establish Zhejiang Furun Digital Technology Co., Ltd. The company will complete the three major business layouts of “digital marketing, blockchain, and fintech” through Furun Digital's wholly-owned subsidiaries, which are funded and established this time: with the current Taiyi Index as the main body, it will continue to expand the field of digital marketing, and advertising business cooperation with Today's Headline, Douyin, and Tencent is expected to continue to strengthen advertising business cooperation with Today's Headline, Douyin, and Tencent; with Furun Digital as the main body, the business layout in the field of the blockchain ecosystem; with Furun Digital as the main body, to carry out business layout in the field of fintech.
On the digital chain-blockchain side: Through the operation of Taiyi Zhishang, the company has accumulated sufficient experience in traffic operation, and has laid out and been deeply involved in blockchain technology for many years in advance. Currently, the technical level of the emerging business is sufficient. It has cooperated with Guoxin Taiyi to launch a trusted computing platform that integrates big data, blockchain, cryptographic computing and other technologies to provide end-to-end data privacy protection. According to the company's official website, the company has reached strategic cooperation with the China Tobacco New Business Alliance, China Unicom, and Zhongyue Technology (Lottery China). Taiyi indicates that it will also empower 5.6 million tobacco retail terminals across the country based on its own big data and blockchain technology to provide digital operations and financial services; and use channels such as the China Tobacco New Business Alliance's offline retail terminals to develop 5G users for China Unicom, promote the offline layout of Zhongyue Technology's lottery terminals, and complete the implementation application of the company's blockchain technology in the lottery scenario. Digital Finance - Fintech: The company has signed a strategic cooperation agreement with China's Taibao and will continue to explore consumer finance, supply chain finance, and small to medium bank upgrades in the future.
Investment business - effectively enhancing performance returns, and collaboration between investment targets can be expected
The investment business is an important part of the company's business segment. The company holds 47 million shares of Shangfeng Cement and is expected to continue to increase the company's performance. In addition, the company also invests in financial enterprises such as the Zhuji Agricultural Commercial Bank and the Bank of Shaoxing, shares in financial enterprises such as microfinance and guarantee companies, and invests in information technology enterprises and industrial funds such as Nielsen Internet and Information Management Information. The company's investments in the financial and industrial fields are effectively increasing performance returns, which is expected to have great synergies with the company's three emerging business sectors.
Investment advice: The company's emerging business is active and promising, and technology accumulation is leading the industry. By investing in the establishment of Furun Digital Chain and Furun Digital Financial, the company completed the three major business layouts of “digital marketing, blockchain, and fintech”. The digital marketing field has entered Douyin and Tencent's major customer cooperation steadily, and the prospects for emerging businesses are worth advancing. Without considering the impact of this listing divestment of traditional business, we expect the company's net profit to be 360 and 43 billion yuan respectively in 2020-2021, EPS will be 0.69 and 0.83 yuan/share, and corresponding PE will be 18 and 15X, covered for the first time, and given a “increase in holdings” rating.
Risk factors: increased competition in traditional industries; the expansion of emerging businesses fell short of expectations; the macro-consumption environment was weak; listing and sales progress fell short of expectations