Main points of investment:
Deep ploughing + expansion model, focusing on the Yangtze River Delta and the Pearl River Delta. Shenzhen Yunfang has been developing in the mode of deep ploughing and expansion in recent years. Future expansion will focus on the Pearl River Delta and the Yangtze River Delta. Of the 1073 offline stores currently owned by the company, 369 are located in Shenzhen, nearly 57 per cent in the Pearl River Delta, 192 in Shanghai and nearly 35 per cent in the Yangtze River Delta. The company plans to focus on first-tier cities, pay attention to potential second-and third-tier cities, continue to plough advantageous locations and increase local market share. 450 million yuan of the funds raised in Guochuang's high-tech acquisition of Shenzhen Yunfang Technology will be used for online and offline business development in Guangzhou and Shanghai to fill the regional gap.
The early expansion foreshadowed the late growth rate. Shenzhen Yunfang was in the period of expansion from 2014 to 2015, with more than 800 new stores established. By the end of August 2016, the company had 1073 stores in 12 cities. In the case of a marked slowdown in store growth in 2016, the profits of the previously expanded stores increased, and profits turned from losses to profits in the first eight months of 2016. Considering the gradual reduction of maintenance costs in the later operation of the data platform and store construction, there is room for the company to release profits in the future.
Performance commitments have taken into account the impact of market regulation. The performance commitments signed by both parties in this transaction have taken into account the impact of market regulation. Shenzhen Yunfang undertakes that the net profit of ordinary shareholders deducted from non-returning shareholders in 2016-2019 will not be less than 242.5 million yuan, 257.5 million yuan, 322.5 million yuan and 365 million yuan respectively, corresponding to the 2017-2019 commitment EPS will reach 0.27,0.34 and 0.38 yuan per share. The potential of the stock housing market is considerable. Housing in first-tier cities starts early, develops rapidly, and the total amount is large; the transaction volume of second-hand housing has exceeded that of new housing transactions, and has entered the era of stock housing. Some hot second-tier cities such as Nanjing also have the phenomenon that the transaction ratio of second-hand housing to new housing is more than 1. With the gradual progress of urbanization and the reduction of urban land available for construction, the market potential of stock housing in the city center is considerable.
Earnings forecasts and ratings. According to the "three-stage" model of intermediary bank valuation proposed by Haitong Real Estate Group, the dynamic PE valuation multiple of agency business in the first stage is suggested to be between 10 and 15 times. Shenzhen Yunfang is in the stage of rapid improvement of agency business from 2014 to 2015, the expansion speed has slowed down in the past 16 years, the operational efficiency has improved, and the performance initially reflects the effect of early expansion. The company expects to continue to expand online and offline service business in the Yangtze River Delta region after the completion of this acquisition, which is still a period of rapid growth. Comparable company World Bank and 365 net 2017 PE in about 22 times. We believe that if the acquisition is successful, Shenzhen Yunfang will obtain sufficient funds through this transaction to continue to cultivate its advantageous location and expand its market share, which can be valued at least 25 times. According to the performance commitments signed by the deal, EPS will reach at least 0.27 yuan per share in 2017. As there is still uncertainty about the success of the transaction, we will not rate the company for the time being.
Uncertainties. Acquisition approval risk.