Investment logic: The actual controller of the company plans to change to state-owned assets, which will greatly enhance the company's financing strength and market competitiveness; the company lays out a wide range of new businesses, greatly improving the quality of the company's revenue and improving the company's operating cash flow compared to traditional garden business.
Introduce state-owned holdings to enhance market competitiveness: the company's actual controllers, Wang Yingyan and Xu Jing, plan to transfer their holdings of about 169 million shares (25% of the company's total share capital) to Xiangjiang Group in two installments at a price of 7.41 yuan through an agreement transfer. After the transfer, Xiangjiang Group will become the controlling shareholder of the company, and the State-owned Assets Supervision and Administration Commission of the Changsha Municipal People's Government will become the actual controller of the company. The active introduction of state-owned capital this time will help optimize and improve the company's equity structure and enhance corporate governance capabilities. Gardening is a capital-driven industry. Xiangjiang Group has a registered capital of 36 billion yuan. By the end of 2020, its total assets had exceeded 87 billion yuan. The credit rating is AAA, and the entry of state-owned assets is conducive to solving the company's capital level problems. At the same time, the superior resources of the company and shareholders can achieve collaborative development, give full play to the institutional advantages of integrated development between state-owned and private enterprises, enhance the company's market competitiveness, and achieve high-quality development.
Promises a three-year performance of 750 million yuan: the original controller of the company promised that the net profit of the listed company in 2021, 2022 and 2023 would not be less than 200 million yuan, 250 million yuan and 300 million yuan respectively, and that the cumulative net profit of the three years returned to the mother would not be less than 750 million yuan. The company's net profit was 300 million yuan and 220 million yuan in 2018 and 2019. Profit is expected to decline sharply in 2020 due to the impact of events such as the epidemic and equity transfers.
The company lays out a wide range of innovative advantages: the company plans to invest 12.5 million yuan in Yunnan to subscribe for 2.44% of Dendrobium's shares. The target company is a high-tech biotechnology enterprise focusing on the development of the entire dendrobium industry chain, which mainly lays out the two major sectors of dendrobium health products and healthy liquor. At the same time, the company's Muquu organic mulch products have been gradually opening up the market in recent years. As the rate of urban greening increases, garden waste has become a pain point, and organic cover products can recycle and reuse urban garden waste, solve the problem of garden waste treatment and meet ecological and environmental protection needs. In the future, they will become the first choice for many cities. As environmental protection policies become stricter and garbage sorting becomes popular, the organic cover business is expected to usher in explosive growth.
Profit forecast and investment recommendations: The EPS for 2020-2022 is expected to be 0.02 yuan, 0.34 yuan, and 0.41 yuan respectively, and the corresponding PE is 260 times, 15 times, and 13 times. Considering that the company's organic coverage product business is more profitable and has better payback compared to the garden business, and that the business has strong growth and market space, the company was given 20 times PE in 2021, with a corresponding target price of 6.8 yuan, covered for the first time, and given a “buy” rating.
Risk warning: Downside risk of macro-investment, risk of the epidemic, risk of repayment falling short of expectations, and risk of equity transfer falling short of expectations.