According to the Zhongtong finance APP, CICC released a research report stating that it maintains the "outperform the industry" rating for cofco joycome (01610), does not consider the impact of the acquisition for now, keeps the 24/25-year profit forecast unchanged, with a target price of 1.8 Hong Kong dollars. On October 21, the company announced the acquisition of 100% equity of cofco goodseed by cash. The bank believes that this acquisition is beneficial for the company to integrate the entire breeding industry chain including breeding, fodder, farming, fresh produce, and deep processing businesses, which also enables the optimization of the company's business structure and enhances its risk resistance.

CICC's main points are as follows:

The announcement of the acquisition of cofco goodseed achieves indirect full control of cofco fodder.

According to the company's announcement: in terms of the transaction scheme, the company entered into a purchase agreement with COFCO Industrial Investment, where COFCO Industrial Investment sold 100% equity of cofco goodseed to the company, and the transaction price was 1.569 billion yuan, with the company paying the full transaction price in cash. Regarding the acquisition target, the main business of cofco goodseed is to invest in controlling and fully owning COFCO Fodder. After this acquisition is completed, cofco joycome will achieve indirect full control of COFCO Fodder. In terms of transaction valuation, COFCO goodseed's 2022/23 after-tax profit is 0.096/0.155 billion yuan. The bank calculated the transaction corresponding to 23 years at 10 times P/E, 1.1 times P/B. Financially, according to the company's estimates, if the acquisition is assumed to be completed by June 30, the company's revenue/profit in 1H24 will increase by 64%/30% to 7.48/0.32 billion yuan.

In 2021, COFCO Fodder ranked 17th in the country in terms of scale, with competitive product matrix and capacity.

Firstly, COFCO Fodder is a national feed enterprise with a certain scale effect. According to the company's announcement, COFCO Fodder produced and sold over 2 million tons of fodder in 2023, with 21 fodder processing plants nationwide; according to Nongcaibao Dian, COFCO Fodder ranked 17th nationwide in 2021 in terms of scale. Secondly, COFCO Fodder achieves a multi-category coverage of feed, demonstrating strong product capabilities. According to the company's announcement, COFCO Fodder's products include pig feed, ruminant feed, poultry feed, aquafeed, premixes, etc., with core brands "Wugu Fengdeng" and "Ruike"; the bank calculated that the ton profit of COFCO Fodder in 2023 is 70-80 yuan/ton, highlighting the company's product strength.

The company's entire industry chain layout is further improved, enhancing business synergy.

First, this acquisition is beneficial for empowering the company's continuous cost optimization. According to the company's announcement, Cofco Joycome Fodder has a professional fodder research and development team, a nationwide production capacity layout. The bank believes that the acquisition will help increase the company's self-sufficiency in fodder, reduce fodder turnover and intermediate costs, thereby promoting the optimization of the farming core business costs. Second, this acquisition helps to thicken and stabilize the overall performance of the company. The bank believes that under the cost add-on attribute of the fodder business, it has stable profitability and cash generation ability, beneficial for smoothing out the cyclical fluctuations of the farming business, enhancing the overall risk resistance of the company. Third, the company is expected to achieve the full layout of the farming industry chain, constructing a more competitive integrated meat enterprise throughout the industry chain. According to the company's announcement, after the completion of the acquisition, the company's business sectors will cover breeding, fodder, farming, fresh products, deep-processed meat products, etc. The bank believes that the company integrates high-quality resources in all aspects, beneficial for responding to the core global strategies of cost leadership, technology-driven, and brand leadership.

Risks: Lower-than-expected pork prices and slaughter volume; epidemic risks; raw material price increases exceeding expectations; acquisition termination.