It is planned to sell the Gesway and Palatine brands for 150 million US dollars to reduce brand losses. The company previously announced a strategic sale of KP Global Investment Limited, a wholly-owned subsidiary holding the Gestway and Palatin brands, and restructuring a series of financing instruments to optimize the Group's investment portfolio and strengthen core business operations, including:
1) Teb signed an agreement with its controlling shareholder Ding Shuibo and his family to sell and privatize the company based on the book value of KPGlobal as of 2024/3/31, with transaction consideration of 150 million US dollars; 2) After the sale is completed, the company's board of directors plans to pay a special dividend of about 150 million US dollars to give back to investors;
3) KP Global issues an 8-year convertible bond worth US$154 million with an annual interest rate of 3.5%. TEP has the right to convert this bond into 30% of KP Global's shares within the next 8 years to offset losses since KP Global was acquired in 2019, as well as capital investment and operating capital up to the end of March 24;
4) KP Global reached a supporting agreement with Gao Lin Capital. KP Global redeemed the 65 million US dollar convertible bonds issued to Gao Lin in '21 and issued HK$500 million worth of convertible bonds for 6 years to Gao Lin, with an annual interest rate of 3.5% and an exchange price of HK$5.5 per share. At the same time, Gao Hing reserved the right to purchase 20% of KP Global's shares for $65 million over the next 5 years.
Optimize the financial structure and focus on the running track
The company's current sale and privatization of KP Global mainly takes into account the pandemic and the current slow economic recovery situation, which has had a major adverse impact on Gestway and Palatin brand businesses. The two brands lost about US$9 million in 24Q1, and the company expects to lose 24 years or close to 23; therefore, it strategically sells assets to eliminate the continued impact of KP Global's losses on TEP's profitability and cash flow.
On the one hand, the sale is expected to reduce the impact of the two brands on the company's performance, consolidate the financial health of the two brands, and give back to investors with continued profitability and special dividends; on the other hand, the business structure is streamlined, focusing on the field of running, with Sauconi serving high-end and mature customer groups; Melody focuses on trail running and outdoor activities, and the strong cash flow generated by Xtrex's main brands may be used to support the rapid development of Sonny and Melotti, and the synergy between brands will be further enhanced.
Maintain profit forecasts and maintain “buy” ratings
We continue to be optimistic that the company will consolidate and strengthen its running mentality. Financial performance is expected to be further optimized after the brand divestment. At the same time, the business side is expected to focus more on the running track. Considering that the transaction has not yet been completed, we will not adjust profit forecasts for the time being. We expect the company's revenue for 24-26 to be 160/179/19.8 billion yuan, respectively, and the net profit to the mother is 11.7/13.4/1.51 billion yuan. The corresponding EPS is RMB 0.44/0.51/0.57 per share, respectively. : Increased market competition; market acceptance of new products falls short of expectations; terminal consumption falls short of expected risks, etc.