Key investment points

The company plans to plan a major asset restructuring: Since January 2024, the company has begun planning asset restructuring matters. As of November 27, 2024, the company has used 0.0.35832 billion yuan in cash to purchase 45% of Suzhou Lancet's shares and 55.2% of Jiangsu Lucent's shares, thus directly and indirectly controlling 55% of Suzhou Lancet's shares. On December 13, 2024, the company announced that it intends to acquire the remaining 45% shares of Suzhou Lankx and 100% of the shares of Chenlin Optics. It plans to purchase them through issuing shares or a combination of issuing shares and paying cash, while also raising supporting capital.

Suzhou Lanx: Mainly engaged in R&D, production and sales of precision metal structural parts, mainly providing contract processing services for structural parts such as mobile phone frames for Apple industry chain manufacturers. Revenue for 2022/2023 was 0.235/0.228 billion yuan, respectively, and net profit was 37.58/41.92 million yuan, respectively (about 14X PE based on a transaction consideration of 0.27 billion yuan to acquire 45% direct shares). The original shareholders of Suzhou Langks promised that the company's net profit for 2024/2025/2026 will not be less than 51.4/56.92/63.12 million yuan, respectively (corresponding to 23%/11%/11% year-on-year, respectively), and the amount of compensation payable for failure to meet the standards.

Chenlin Optics: Established in 2022, it relies on cutting-edge optical technology and artificial intelligence to provide enterprises with manufacturing, inspection, packaging, data management and traceability services. It mainly serves the optical communication, IC carrier board, semiconductor, new energy and other industries. Sales span South Korea, Hungary, Vietnam, etc., with sales exceeding 0.2 billion yuan in 2023.

Continued losses since 2020. Due to the weak domestic consumption environment and poor sales in the leather shoe industry, the company's performance continues to be under pressure. Revenue has declined for many years since 2014, and net profit to mother has continued to lose money since 2020. Revenue for the first three quarters of 2024 was 0.57 billion yuan/yoy -0.92%, and net profit to mother was -41.43 million yuan, of which 24Q1/Q2/Q3 revenue was +23.36%/-9.28%/-16.1%, respectively, and net profit to mother was 4.93/-16.78/-29.59 million yuan, respectively. As of the end of 24Q3, the company had 979 stores, a net of 5 stores since the beginning of the year.

Profit forecast and investment rating: The company specializes in high-end domestic leather shoes. It was launched in 2016. In recent years, it has been affected by sneaker replacement+weak consumption through traditional channels, and the main business performance continues to be under pressure. Since 2024, the company has begun planning a major asset restructuring, and plans to lay out the precision metal structural parts processing and optical inspection industries. We believe that the restructuring is expected to increase the business scale and profitability of listed companies. At the same time, with the financing platforms of listed companies, the targets of the acquisition are also expected to further expand their business scale and customer resources and enhance competitiveness. Considering that the results for the first three quarters of 2024 were lower than our previous expectations, and considering that the company completed the 55% share acquisition of Jiangsu Lancus at the end of November, we adjusted the 2024/2025 net profit forecast value from 0.01/0.017 billion yuan to -0.025/0.033 billion yuan, increasing the 26-year forecast value of 0.054 billion yuan, corresponding to PE 132/80X for 25/26, maintaining a “neutral” rating.

Risk warning: The progress of the acquisition fell short of expectations, and the development of the target business fell short of expectations.