Key points of investment:
Incident description: On October 31, the company announced an asset restructuring plan. The company plans to issue shares and pay cash to the Zhuhai State-owned Assets Administration Commission and Urban Construction Group to purchase 100% of the shares of the Zhuhai Duty Free Group; at the same time, it plans to raise no more than 800 million yuan of supporting capital from GM Investment's non-public offering of shares. The total equity transaction price of the Zhuhai Duty Free Group this time was 12.215 billion yuan, of which 11.415 billion yuan was paid for issuing shares, and the issue price of shares was 4.3 yuan/share. 2,187 million shares/467 million shares were issued to the Zhuhai State-owned Assets Administration Commission and Urban Construction Group respectively; after the issuance was completed, the equity ratio of the Zhuhai State-owned Assets Administration Commission and its holding companies would increase to 71.44%.
With the acquisition of the Zhuhai Duty Free Group, the company will develop the duty-free industry. Zhuhai Duty Free Group (hereinafter referred to as “Pearl Exemption”) is the second largest duty-free operator in China. Currently, it operates duty-free shops at ports such as Zhuhai Gongbei Port, Jiuzhou Port, Hengqin Port, and Hong Kong-Zhuhai-Macao Bridge. In 2019, it achieved operating income of 2,660 million yuan and net profit of 681 million yuan for its mother. As of March 31, 2020, the book value of all equity attributable to shareholders of the parent company of the simulated merger was 3.286 billion yuan, the assessed value of all shareholders' equity was 12.566 billion yuan, the value-added rate was 282.43%, and the profit of Zhu Free handed over 351 million yuan to the Zhuhai State-owned Assets Administration Commission.
Referring to the price-earnings ratio and net price-earnings ratio of China-free buy-in Shanghai on a daily basis of 11.59 times/98.94 times, respectively, and the price-earnings ratio and net price-earnings ratio and price-net ratio of China's free buy-in were 15.44 times/13.11 times respectively. The price-earnings ratio and net price-earnings ratio corresponding to this transaction were 17.93 times/3.36 times respectively. The transaction price was reasonable. According to the “Performance Pledge Compensation Agreement”, the Zhuhai State-owned Assets Administration Commission and Urban Construction Group promised that net profit of 2021/2022/2023 will not be less than 5.50/641/747 million yuan respectively.
The company is expected to enjoy tax exemptions on the outlying islands and the Greater Bay Area policy dividends in the future. The company announced on September 8 that its subsidiary, Zhuhai United Real Estate, won the bid for the Sanya Phoenix Coastal Plot, and will build a high-end tourist retail project in Sanya. The company's Gongbei Port Duty Free Shop is currently being expanded and is expected to be gradually completed and put into operation next year. Seven days before the National Day this year (October 1 to October 7), the total number of visitors to mainland Australia was 130,000, recovering to 16.28% in the same period last year. As various ports in Zhuhai resume normal customs clearance one after another, passenger traffic continues to increase, and port duty-free shop performance will recover rapidly. Zhu Xuan has been operating duty-free for many years and has the advantage of duty-free purchasing channels. The company will participate in duty-free operation on the outlying islands in the future, give full play to its location advantages, enjoy the policy dividends of the Greater Bay Area, and explore the value of duty-free operation at the Zhuhai-Macao Port.
Profit forecast and investment advice: At present, asset restructuring has not been completed, and the Zhuhai Duty Free Group has not been consolidated, so the profit forecast is not adjusted. The estimated net profit for 20-22 is 617/683/783 million yuan, the EPS for 20-22 is 0.30/0.33/0.38 yuan, and the corresponding PE is 31/28/24 times. Long-term optimism is that after the asset restructuring is completed, the company's in-depth layout of tax exemptions and port tax exemptions on outlying islands will maintain the “increase in holdings” rating.
Risk warning: The impact of the epidemic on the recovery of passenger flow at the Zhuhai-Macao port fell short of expectations, and the company's duty-free suppliers were unable to meet sales demand.