The transaction consideration was basically in line with expectations, and the amount raised was slightly lower than expected. Recently, the company announced that it plans to purchase 100% of Kakizhuyuan Company's shares through the issuance of shares and cash payment. The transaction price (excluding the amount of supporting capital raised) is 5.195 billion yuan, accounting for 33.15% of the total share capital of the listed company after issuance. The share payment amount is about 4.795 billion yuan. The total share capital of the company is about 2.09 billion shares after the transaction is completed. 2) In addition, the company plans to raise no more than 1.8 billion yuan to be used for the construction of a 10,000-ton harvesting technology improvement project for persimmon bamboo garden, etc. The total amount of assets purchased and capital raised this time was approximately 6.595 billion yuan.

Performance promises are less difficult to achieve. The performance commitment period is three consecutive fiscal years from the year the acquisition was completed. If the equity settlement of this acquisition occurred in 2024, the mining rights promise a cumulative net profit of 744 million yuan in 2024-2026. Due to the steady rise in tungsten prices over the past 24 years, it is less difficult to achieve this result.

The target company has excellent resource endowments, and an increase in tungsten production is just around the corner. Kakizhuyuan Company's current ore processing capacity is about 2.3 million tons per year, tungsten concentrate equivalent to 8,000 tons/year, molybdenum concentrate equivalent to 1,600 tons/year, bismuth concentrate metal content 1,600 tons/year, and fluorite concentrate dry weight 300,000 tons/year. In May 2023, the company's 10,000 t/d mining technology improvement project was evaluated. The mining process will be changed from underground mining to open pit mining, and the harvesting scale will increase by about 63% to 3.5 million tons/year. The construction period of the project is expected to be 4 years. This transaction will help the company form a complete tungsten industry chain integrating tungsten mining, tungsten smelting, hard alloys and deep processing, and enhance its core competitiveness.

The rise in tungsten prices may drive Kakizhuyuan's performance to increase dramatically. Kakizhuyuan specializes in comprehensive recycling of tungsten, molybdenum, bismuth polymetals and fluorite, and tungsten concentrate contributes the main profit. In 2014, Q1 Kakizhuyuan's net profit was 150 million yuan, and the average price of Q1 tungsten concentrate was about 125,000 yuan/ton; we expect the Q2 tungsten price center to be 140,000 yuan/ton and the H2 tungsten price center to be 150,000 yuan/ton. In 2023, Kakizhuyuan's quota is 7,750 tons, assuming an annual output of 7,500 tons. Overall, the net profit of the 24-year standard company is estimated to be about 700 million yuan, an increase of 98%.

Investment advice: The price of tungsten has been rising steadily over the past 24 years. The short-term downstream positive price of tungsten will take some time, but the gap between supply and demand will still be large in the next 2 years, and the price of tungsten may continue to rise. Kakizhuyuan is a high-quality domestic tungsten mine, and it is planned to further expand production with technical improvements in the future. After injection into the company, it is expected to significantly increase performance and enhance the competitiveness of the industry.

Regardless of the injection situation, the company is expected to achieve net profit of 5.42, 6.05, and 719 million yuan in 2024-2026, corresponding to price-earnings ratios of 26.6, 23.8, and 20.0 times, maintaining a “highly recommended” rating.

Risk warning: the risk of tungsten price fluctuations, the company's project progress falls short of expectations, and downstream demand for products falls short of expectations.