Incident Overview: On March 29, the company issued the “Notice Concerning Asset Acquisition Matters Not Constituting Major Asset Reorganization and Termination of Major Asset Reorganization Proceedings”. The announcement shows that under the “Administrative Measures on Major Asset Restructuring of Listed Companies”, the latest data from the company's 2023 annual report was used as the calculation basis, and after financial due diligence on the target company, it was determined that the acquisition did not constitute a major asset restructuring and terminated the major asset restructuring procedure: At the same time, the company is continuing to advance the acquisition and carrying out the asset acquisition procedure in accordance with relevant regulations. Currently still in the due diligence process: (Please refer to the company in November 2023 for detailed background on the previous acquisition framework agreement

“Suggestive Notice on Planning Major Asset Restructurings and Related Transactions” announced on the 27th).

In our opinion, this announcement revealed two important messages:

1) 85% of the target shares of the acquisition target are continuing. The target company is 85% of the shares of PREDAPTIVE0DLIMITED in the UK, and the target company holds 100% of the shares in Holovis in the UK:

2) After the 2023 annual report of Roman Co., Ltd. and the target company, the most recent fiscal year was changed from 2022 to 2023, and none of the indicators relating to the proposed acquisition in 2023 exceeded 50% of the company's total assets, net assets, and operating income audited in 2023. Therefore, according to regulations, this transaction will not constitute a standard for major asset restructuring. We believe that assuming future transactions proceed smoothly, it is expected that simplified procedures (compared to major asset restructuring scenarios) will be applied in terms of procedures and regulatory approval processes in the future.

The acquisition will be an important step in the company's digital entertainment business. The company is mainly engaged in landscape lighting overall planning and deepening design, construction of landscape lighting projects, and other landscape lighting services such as remote centralized control management. It is currently actively expanding the digital entertainment business, relying on the company's lighting and energy management system and the two major technology platform systems for immersive experience implementation systems, focusing on the three major application directions of urban science and technology museums, theme parks, and digital creative services to continuously enrich new smart entertainment scenarios and build a digital culture brand. In view of the strong technical capabilities and implementation experience of Holovis, a wholly-owned subsidiary of the target company, in the fields of creative content production and virtual reality technology, through this transaction, the company's existing business can complement Holovis's advantages and has strong synergy effects, which helps the company to be closer to the market and customers, while further expanding overseas markets. It is expected that the company's business scale and profit level will also increase, which is conducive to enhancing the company's overall competitiveness.

Investment advice

We maintain our 2024-2026 revenue forecast of 9.88/13.39/1,753 million yuan, and maintain our net profit forecast of 1.38/1.71/209 million yuan and EPS of 1.26/1.55/ 1.90 yuan, corresponding to the closing price of 33.6 yuan on March 28 at 26.75/21.61/17.68xPE, maintaining a “buy” rating.

Risk warning

The progress of the acquisition fell short of expectations, the asset acquisition failed, asset integration and profitability fell short of expectations. When the company announced in December '21, the director and secretary were alerted by the Shanghai Stock Exchange, systemic risks, etc.