Incident: 1) The company plans to use its own capital of 50,000 yuan to increase Tianyin Communications's investment in StarLeague Information. After the capital increase, Tianyin Communications's investment ratio increased from 1.74% to 17.97%. Star League Information owns part of the shares in Shenzhen Zhixin New Information Technology Co., Ltd. The company has now signed an acquisition agreement with Huawei to complete the full acquisition of business assets related to the Honor brand.
2) The subsidiary Tianyin Communications plans to guarantee that Tianyin Information will increase the amount of credit financing granted to banks and other financial institutions by 300 million yuan.
Star League is a powerful alliance of domestic distribution giants. After Star League Information's capital increase, the investment ratios of Tianyin Communications, Gongqing City, Songlian Technology, Putian Taili, China Post and Telecom, and Kunpeng Zhan Wing reached 17.97%, 23.72%, 18.69%, 17.97%, 21.56%, and 0.09% respectively, with a total investment amount of 2,783 billion yuan. Gongqing City has a relationship with the company, while Beijing Songlian, Putian Taili, and China Post Equipment are all domestic mobile phone distribution giants. Strong alliances will help strengthen the voice of channel vendors.
Participated in the acquisition of Huawei Honor and further expanded its distribution business. The mobile phone distribution business is the core business of the company. The company mainly represents the three major brands of Apple, Huawei and Samsung, accounting for 85.50% of total revenue in 2019. The company previously distributed the more high-end Huawei series, such as the P30/P40, and did not participate in the sale of Honor series products. This acquisition is likely to open up the Honor series distribution business, making it a new business growth point. The company's participation in this acquisition is conducive to strengthening strategic partnerships with mobile phone manufacturers, exploiting synergies to explore diversified business development, and its own layout in the mobile phone industry chain is also more in-depth
Honor has a strong acquisition lineup, and integrated channels can be expected to grow. After the full acquisition, Huawei does not own any shares in Honor, nor does it participate in management and decision-making. Honor will successfully overcome this chip ban crisis. The investors in this acquisition include not only domestic mobile phone distribution giants such as Tianyin Communications, Beijing Songlian, Putian Taili, and China Post Equipment, but also the offline store Shenzhen Shundian, and e-commerce representative Suning Tesco. The Honor series itself has strong market competitiveness. The full opening of sales channels will help Honor achieve further growth. If the company develops smoothly in the future, the company will also obtain a certain amount of investment income.
Profit prediction and investment ratings: Participating in the acquisition of Honor has effectively extended the company's layout in the mobile phone industry chain, and the distribution business will also usher in new growth points. Looking ahead, the company's “1+N” strategic layout is gradually becoming clear. The 5G switching wave will drive the mobile phone distribution business to continue to grow rapidly, and the “go out” strategy will open up space for lottery business development. Furthermore, its Ta Reading Literature introduces Battle Investment ByteDance and the mobile phone distribution business expands duty-free channels on the outlying islands. The company's business growth points are more diverse, so it is recommended to pay active attention. Maintaining the profit forecast, the EPS for 20-22 is expected to be 0.10/0.17/0.29 yuan respectively, and the corresponding PE for the stock price on November 25 is 75/43/24 times, respectively, maintaining the “prudent increase” rating.
Risk warning: The acquisition progress fell short of expectations, Honor's subsequent development fell short of expectations, business development fell short of expectations, etc.