While the recent placement of H shares caught the market by surprise, it eliminates the risk of further H share placement in the coming months. Although the recent acquisitions of a coal mining machine company and an online logistics platform are not done at attractive valuations, the deals are relatively small and may bring synergy over the longer term. We trim our 2024-26 EPS forecasts by 2-3% to reflect the impact of share placement and recent acquisitions. At current price, the company's H shares offer attractive average dividend yield of 6.4% for 2024-26E. Hence, we upgrade the company to BUY with target price at HK$20.53.
Key Factors for Rating
Yankuang did a top-up share placement of 285m H shares at HK$17.39 per share to raise about HK$4.96bn after market close on Monday. It caught the market by surprise as it made more sense for the company to place A shares as the latter were trading at 39% premium to H shares back then. While it looks right on surface, it is practically much more troublesome to do A shares placement due to the lengthy approval process. The good thing is the risk of further placement of H shares is removed for at least the coming three months based on the undertaking of the major shareholder.
Yankuang has agreed to acquire a 45% stake in Wubo Technology for RMB1,555m through a capital increase exercise according to its announcement last Friday. Wubo owns and operates an online logistics platform to match truck operators and cargo owners. In 2023, Wubo recorded turnover of RMB21.9bn, gross margin of 2% and net profit of RMB87.1m. Yankuang has got profit guarantee from the original shareholders of Wubo for 2024 to 2028, with net to increase from RMB98.8m in 2024 to RMB139.1m in 2028. The implied valuation of Wubo is 35x 2024E P/E. It is expensive compared to 18.2x 2024E P/E of Full Truck Alliance (YMM US/NR). However, we do not think the guaranteed profits include any synergy with Yankuang as the latter also owns and operates railways and ports. Yankuang has also listed intelligent logistics as one of its five development strategies in future.
Key Risks for Rating
Sharp fall in coal prices.
Higher-than-expected costs.
Valuation
We lower our target price for its H shares from HK$21.13 to HK$20.53 mainly to reflect the cuts in our EPS forecasts. We still set our target price at 5.5% average dividend yield for 2024-26E. This is equal to 9.6x 2024E P/E.
