The company announced on February 28 that its wholly-owned subsidiary and Shenzhen Kunpeng Equity Investment Management Co., Ltd. signed a share transfer agreement with Mr. Zhang Jindong, SUNING Holdings Group Co., Ltd. and other related parties: Shenzhen International and Kunpeng Capital, respectively, it intends to acquire 745 million shares and 1.397 billion shares of SUNING at RMB6.92 per share, corresponding to 8% and 15% of SUNING's total share capital. The total consideration is 14.8 billion yuan, of which Shenzhen International pays 5.154 billion yuan.
Comment
The acquisition price corresponds to SUNING's 2019 price-to-earnings ratio of 7 times; according to SUNING's equity incentive announcement on January 29, the performance is expected to turn around in 2022, with a non-net profit target of 10-1.5 billion yuan in 2022. If calculated on the basis of the median, the acquisition price corresponds to 52 times the 2022 price-to-earnings ratio, and according to the CICC retail group forecast, the acquisition price corresponds to 54 times the 2022 price-earnings ratio.
Shenzhen International may have multiple synergy with SUNING to promote the development of its main logistics industry. 1) to enhance the market share of integrated logistics port business, this acquisition will strengthen the existing cooperation between Shenzhen International and SUNING in logistics infrastructure, and accelerate the national layout of the integrated logistics port project. 2) help to obtain more high-quality comprehensive logistics land resources. SUNING is one of the largest retailers in China. The combination of "business flow and logistics" after acquisition can help the company to obtain more adequate high-quality logistics land resources in various cities. 3) extending its own logistics service links, SUNING Logistics provides overall logistics solutions for China's circulation and retail industry. With logistics warehousing and distribution networks all over the country, the company may be able to cooperate with SUNING Logistics. Transformation from logistics infrastructure provider to integrated logistics service provider.
Short-term impact on Shenzhen International earnings is small. SUNING has increased investment in online business in recent years, and subsidies and cultivation for new business have dragged down overall performance, but SUNING believes that large subsidies have basically come to an end, and future performance will also accelerate improvement. it may make a profit contribution to Shenzhen International from 2022 (about 100 million yuan in 2022, accounting for about 2% of Shenzhen international profits that year).
Shenzhen International performance Preview. We expect to achieve a net profit of HK $5 billion for the whole year, which is the same as the same period last year (2H down 13%). Based on the following assumptions: 1) Highway operation will resume single-digit year-on-year growth in the second half of the year. Highway + environmental protection contributes HK $1 billion in profits for the whole year; 2) compensation for Qianhai project contributes one-time after-tax income of HK $3 billion, Meilinguan and Qianhai development profit HK $1.6 billion, and Xiba wharf compensation income contributes HK $800 million. 3) the loss of Shenzhen Airlines 2H narrowed (1H/2H lost HK $1.240 billion respectively); 4) Logistics contributed HK $300 million in profits, while the newly invested equity in Air China contributed a little profit. Sound performance may provide some guarantee for high dividends in 2020, and we estimate that the current price corresponding dividend yield is 9%.
Profit forecast and valuation. Temporarily maintain the 2020 net profit of 5.024 billion Hong Kong dollars (+ 0%YoY), 2021 net profit of 4.562 billion Hong Kong dollars (- 9%YoY) unchanged, because the acquisition is still uncertain, do not consider the impact of the acquisition. The current share price corresponds to a price-to-earnings ratio of 5.6 times 2021 / 6.2 times earnings and an 8.9% dividend yield of 8.1%. Maintain an outperform industry rating and a target price of HK $17.88, corresponding to a price-to-earnings ratio of 7.8 times / 8.6 times earnings in 202021, which is 39.3% higher than the current share price.
Risk.
The progress of the acquisition was not as expected, and SUNING lost more than expected.