Incidents:

On October 31, '23, Guo Songsen, the actual controller of Senyuan Co., Ltd., and Qi Guangtian, a shareholder, signed a share transfer agreement with Beijing Zhongke Credit Control. The 58 million shares held by Guo Songsen and the 24 million shares held by Qi Guangtian will all be transferred to Zhongke Information and Communications. Guo Songsen and Zhongke Credit and Communications signed a voting rights waiver agreement, relinquishing voting rights corresponding to 75 million shares held. After this share transfer and relinquishment of voting rights are completed, Zhongke Credit Holdings will hold 82 million shares of Senyuan shares, with 17% voting rights, and become the controlling shareholder. Since Zhongke Credit Holdings has no actual controller, Senyuan Co., Ltd. will be changed to a holding without an actual controller.

Comment:

National scientific research teams hold shares to create a healthy ecosystem for science and innovation. China Science and Technology Information Control is a state-owned professional agency and platform agency wholly owned by the Computer Network Information Center of the Chinese Academy of Sciences. It is responsible for the operation management and equity management of the scientific and technological achievements of the Institute. It leverages the advantages of scientific and technological innovation and transformation of scientific research results, relies on the strength of the Chinese Academy of Sciences system, and promotes industrial development through academy-local cooperation. The enterprises owned by Zhongke Information Control cover various fields such as artificial intelligence, big data, and high-performance computing. Senyuan Co., Ltd. is mainly engaged in the manufacture of road maintenance equipment. As the shareholder of Senyuan, Zhongke Information Control will provide it with strong scientific and technological innovation support and promote the development of its AI computing power project. The scientific research strength of China Science and Technology and the manufacturing advantages of Senyuan Co., Ltd. complement each other, which is conducive to the industrial upgrading and transformation of Senyuan Co., Ltd.

Losses have been reduced, and gambling agreements are guaranteed to be profitable. Q3 of '23 achieved net profit of 13 million yuan, +44.20% year-on-year and +30.91% month-on-month. From the perspective of profit, the amount of losses has been continuously reduced, and the profit situation has improved. On the premise that the transferor can independently operate the target company's original business and that the transferee cooperates to complete the internal approval procedures required for the original business, the transferor promises that the total net profit of the target company in 2024 and 2025 is positive.

Capital is injected into steady development, and new fields continue to be developed. After the actual shareholder was changed, Zhongke Holdings temporarily provided 150 million yuan of financial support to the target company. In the future, China Science and Technology will provide 130 million yuan of financial support to Senyuan through direct or coordinated means. After the underlying shares are settled, Moriyuan's original business and new business in '24 and '25 can be operated and financially accounted for independently. When the original business is profitable, profits are distributed to core personnel and teams in the form of bonuses or performance. When the accounts receivable and investment activities of the original business generate a return of cash, the remaining capital can be used for the development of the new business of the target company on the premise of guaranteeing the fulfillment of performance promises, repayment of the transferor's loan, and guarantee the loan.

Profit forecast: The company's net profit from 2024-2025 is expected to be 1.10/257 million yuan, respectively, and the corresponding PE is 30/13 times, respectively. The company was given a PE valuation of 35 times the profit in 2024, and the corresponding target price was 7.98 yuan. First coverage, giving a “buy” rating.

Risk warning: New business development falls short of expectations, profit forecasts and estimates fall short of expectations