The company's recent situation
The company issued an announcement: 1) It plans to acquire 37.8% of Newegg's shares with its own capital of 179 million US dollars. After the transaction is completed, the company will hold 93.5% of Newegg's shares. 2) It is proposed to acquire 28% of the shares of Beijing Dian Win-Win Advertising Company in cash. After the transaction, the company will hold a total of 49% of the shares of the target company. The company's trading has been suspended since March 21, 2017, and trading resumed today (June 21). During the suspension of trading, the CITIC Media Index fell 10.4%.
reviews
1. De'an Win-Win Advertising has rich offline media resources and high-quality customer resources. It has media management rights for the terminals of Beijing Capital Airport, Guangzhou Baiyun Airport, and Wuhan Tianhe Airport. The acquisition is expected to promote the integration of the company's online resources and De'an's win-win offline resources, and help listed companies improve their online traffic and monetization capabilities. The target net profit for 17-21 after deducting non-attributable net profit for gambling was 204 million, 245 million, 294 million, 300 million, and 300 million dollars, respectively, which is expected to increase the performance of listed companies.
2. Newegg (Newegg) is the second-largest pure e-commerce company in the US in the IT/CE category. In 2016, operating income reached 15.3 billion yuan, gross profit of 1.53 billion yuan, and net profit of 92.29 million. Compared with 2015, losses were significantly narrower. We used the market sales rate valuation method, which is more common in the e-commerce industry. Referring to comparable companies such as JD/Suning, etc., and giving 1.4 times P/S, the fair market value of the new egg reached 21.4 billion yuan, and 93.5% of the equity value was about 20 billion dollars.
3. Through this acquisition, Contact Interactive is expected to complete important adjustments in the business structure, transform from mobile Internet OS operations to e-commerce platforms, and enter a broader smart hardware and cross-border e-commerce market. Contact Interactive has more than 100 million new active users per year. It is expected to channel traffic to the Xinegg platform, increase users' ARPU values through e-commerce platforms, and enhance the traffic entry value of Contact OS. At the same time, while building on America's local advantages, the company will also use Xinegg to develop cross-border e-commerce business, combining overseas product advantages with the vast Chinese market.
Valuation recommendations
The 2017 net profit forecast was lowered by 28.5% to $440 million, and the forecast for 2018 would be 527 million, with year-on-year increases of 24.4% and 19.7%, respectively (not considering this merger and acquisition for the time being). According to 1.4 times P/S, Xinegg's fair market value reached 21.4 billion yuan, corresponding to 93.7% of the equity value of Xinegg, which is about 20 billion dollars. If the market value of a listed company was 28.3 billion dollars before the suspension of trading, then the corresponding market value of the main business was about 8.3 billion dollars, and the corresponding price-earnings ratio in 2017 was about 20 times. Using the segmental valuation method, if the main business other than Xinegg (contact OS+ game) is given a target price-earnings ratio of 30 times that of 2017, and Xinegg is given a target market value of 20 billion yuan, then the company's overall target market value is 33.2 billion dollars. Lower the target price by 50% to 15 yuan/share to maintain the recommendation.
risks
The progress of the acquisition fell short of expectations, and the development of new eggs fell short of expectations.