The company announced a major asset purchase plan. It intends to make an offer to acquire an overseas subsidiary of COFCO Packaging (as the “offender”) of its subsidiary Huarui Fengquan Co., Ltd., to issue a voluntary conditional comprehensive offer to all shareholders of COFCO Packaging, a company listed on the Hong Kong Stock Exchange (excluding the company's indirect shareholding of about 24% of COFCO Packaging's shares, with a maximum acquisition of about 76%) at an offer price of HK$7.21 per share.
Assuming that the offer is fully accepted, the price of the corresponding underlying asset is approximately HK$6.1 billion, converted to the median RMB exchange rate on June 6, 2024, which is approximately RMB 5.5 billion.
After the transaction is completed, COFCO Packaging will become a subsidiary controlled indirectly by the company. The company will control no less than 50% of COFCO Packaging's total shares, and Zhou Yunjie (Orekin's actual controller) will become the actual controller of COFCO Packaging.
The source of funding is own capital and self-financing. It is proposed to apply for bank credit. The transaction is a cash acquisition. The company will use its own funds and self-raised funds to pay the transaction price.
To implement this transaction, Huarui Fengquan Co., Ltd. plans to apply for a bank credit of not more than RMB 4 billion (or HKD equivalent) from SPD Bank Beijing Branch, and Huarui Fengquan Development plans to apply for bank credit of not more than RMB 7 billion (or HKD equivalent) from SPD Bank (acting through its Hong Kong branch).
The entry into force and completion of matters related to this transaction are yet to be reviewed again by the board of directors of the Company, and reviewed and approved by the Company's shareholders' meeting and approval or approval from the competent supervisory authority.
Consolidate the main business, expand strategic customers, and promote sustainable development. COFCO Packaging and Orijin are both deeply involved in the metal packaging industry. COFCO Packaging's revenue was 10.3 billion yuan, the same year on year, with revenue from aluminum cans being 5.1 billion, the same year on year; revenue from tin cans was 4.2 billion, the same year on year; revenue from plastic packaging was 700 million, +5% year on year; gross profit margin of 15.6%, +3 pct year on year; net profit to mother of 480 million yuan, -2% year on year.
Through this transaction, the company will further consolidate the main business of two-piece cans, three-piece beverages, and milk powder cans, and further enrich domestic product lines such as steel drums, aerosol cans, plastic packaging, etc.; the company will also achieve complementary advantages with COFCO Packaging from multiple dimensions such as technology, marketing, production capacity, supply chain, etc., to serve customers with different needs through differentiated positioning, thereby further expanding strategic customers, reducing dependence on a single customer, and promoting sustainable development.
The consolidation of the metal packaging industry is expected to drive increased profitability
According to the Joint Research Network, the domestic production capacity of Orekin, COFCO Packaging, and Baosteel Packaging is 13.5 billion cans, 120+ billion cans, and 110+ billion cans respectively; in the context of increasingly intense industry competition in recent years, combined with the effects of slowing macroeconomic recovery and rising prices of upstream raw materials, the profit margins of metal packaging companies have narrowed. We expect the concentration of the two-piece can industry to increase further after this industry integration, and the industry's profit level is expected to rise steadily.
<香港>We believe that if the company's acquisition is successfully completed, Orekin will become the absolute leader in domestic metal two-piece cans (with a market share of more than 40%), and the price system and profitability are expected to be fully improved along with the overall improvement of the industry pattern; if other offenders (CHAMPION HOLDING (BVI) CO., LTD, are represented by Shenwan Hongyuan Finance Co., Ltd., and the offender is directly wholly-owned by Changping Industrial to complete the acquisition of COFCO Packaging. Orekin, on the one hand, is currently the second shareholder of COFCO Packaging (holding 24% shares), or will receive investment benefits. On the other hand, it also benefits from improved industry patterns and increased profitability.
Maintain profit forecasts and maintain “buy” ratings
It is recommended to actively monitor the progress of the acquisition event and the improvement of the industry pattern. We maintain profit forecasts. We expect net profit to be 9.3/10.7/1.23 billion yuan for 24-26, respectively, and the corresponding PE is 13/11/10X, respectively, to maintain a “buy” rating.
Risk warning: Downstream demand recovery falls short of expectations, risk of raw material price fluctuations, risk of acquisition progress falling short of expectations, risk of declining core customer share, etc.