Incident: On December 29, 2023, Shanghai Rice announced that Haier Group invested 12.5 billion yuan to obtain 20% of the shares held by Grifols, while the latter entrusts the voting rights corresponding to the remaining 6.58% of the shares to Haier Group or its designated related party. After the transaction is completed, Haier Group will become the shareholder of Shanghai Laishi Holdings and the actual controller of the listed company. The transaction price was $62.5 billion in terms of market capitalization, a 17.48% premium over the closing market capitalization. The announcement also revealed that the two parties to the transaction agreed on the performance promises and dividends for the next 5 years for GDS, which has 45% of the shares in Rice, and the next 10 years of Kirriff's imported albumin business.

The shareholder structure of the company has changed significantly, and Haier's entry into the company will have a positive impact on the company's management. Haier Group is one of the major private enterprises that have grown rapidly in China since the reform and opening up. The Haier Group's pharmaceutical sector includes two listed companies, Haier Biotech and Yingkang Life, and the merger and acquisition of Race has further improved the layout of Haier's blood ecology industry chain. For Shanghai Race, ending the previous four years without an actual controller, it is expected that a longer-term strategic plan will be formulated, which will help improve the company's overall management efficiency and steady growth in performance.

Determining GDS's performance commitments and future long-term cooperation in the imported albumin business will help Rice improve asset quality. Shanghai Race obtained 45% of GDS's shares in 2020 when it introduced Kirriff through a fixed share exchange. The 2023 semi-annual report revealed a book balance corresponding to long-term equity investment of 15.443 billion yuan. The return on this portion of assets had a significant impact on the company's overall ROE. GDS is a leading global blood screening nucleic acid reagent company. In this transaction, Kirriff promised that GDS's cumulative EBITDA for the period from January 1, 2024 to December 31, 2028 will not be less than US$850 million, while declaring dividends of no less than 50% of GDS' net profit for the fiscal year every year, which will help Rice increase return on investment, reduce the risk of impairment, and increase return on cash. In addition, Kirriff has signed a 10+10 year long-term agreement with Lacey for the exclusive agency business of albumin, and has committed to the price and minimum supply, and has stable expectations for the company's import agency business.

Investment advice: As a leading enterprise in the domestic blood products industry, Shanghai Laishi has a complete range of products and is leading in scale in the industry. Since Haier and Kirriff shares will take time to be settled, we are not adjusting profit forecasts. We expect the company's net profit to be 22.35/25.71/2,974 billion yuan respectively, up 18.90%/15.02%/15.65% year-on-year, EPS 0.33 yuan, 0.38 yuan, and 0.44 yuan respectively. The current stock price corresponds to 2023-2025 PE 24/21/18 times, maintaining the “recommended” rating.

Risk warning: Risk of unreasonable shareholders and governance structures interfering with the company's operations, risk of new pulp station plans falling short of expectations, risk of pulp station management and blood product quality incidents.