Main points of investment
Event: Tianshan Biological disclosed a major asset restructuring plan, the company intends to issue shares and pay cash to buy 96.2% of Elephant shares, and will acquire its remaining shares in cash.
Internal adjustment of the business to achieve a turnaround from losses to profits. The company suffered a continuous loss in 2015 and 2016, mainly due to the serious reversal of cattle prices introduced by its Australian subsidiaries, resulting in a substantial loss in the company's performance. In 2017, the company actively adjusted its business structure, suspended and rectified the operations of most of its Australian subsidiaries, and the 2017 semi-annual report revealed a substantial reduction in three fees, effectively improving the company's operating efficiency.
The expansion of domestic beef cattle farming capacity is imminent: China's beef consumption increased from 1.1 million tons in 1990 to 7.59 million tons in 2015, an increase of nearly seven times. However, since 2012, domestic beef demand has increased significantly, while domestic beef production has grown slowly, resulting in a rapid expansion of the gap between supply and demand in the domestic market. The gap between beef consumption and production in China in 2016 is 900000 tons. Based on the average beef price of 62.2 yuan / kg, there is still a gap of 56 billion yuan between supply and demand in China. In view of the domestic scarce high-end beef market, the company steadily carried out the strategic model of "taking two ends with the middle" in 2015. The company has successfully introduced 24000 Angus species in the past three years, which is beginning to take shape, and the future volume is worth looking forward to.
When the reorganization is carried out, we look forward to giving full play to the synergy. The Elephant shares to be acquired by the company are priced at 2.37 billion yuan, and the listed companies plan to buy 130 million Elephant shares by issuing shares and paying cash, accounting for 96.21% of the total share capital. at the same time, the matching funds raised by non-public offering shares do not exceed 600 million yuan. At the same time, Chen Dehong promised that the net profit of the target company in 2017, 2018 and 2019 should not be less than 140 million yuan, 180 million yuan and 210 million yuan, respectively. We believe that if this acquisition can be successfully landed, on the one hand, Elephant shares has many years of operation experience in the outdoor advertising industry, its model is clear and the business is mature, and it can bring stable sources of income and profits for Tianshan Biology. On the other hand, the company can rely on the publicity channels of Elephant shares to open up the overseas market for its beef products and accelerate the progress of market development.
Profit forecast and investment advice. Regardless of the impact of the acquisition of Elephant shares on performance, it is estimated that the EPS of Elephant shares in 2017-2019 will be 0.05,0.08,0.10 yuan respectively. Considering that Elephant shares have made performance commitments, if the acquisition can be successfully landed, it will greatly enhance the company's profitability and enjoy a higher valuation premium. It is recommended to keep an eye on it. Do not give the target price for the time being, and maintain the "overweight" rating.
Risk tips: beef cattle out of the column size or below expectations, beef cattle prices or a sharp drop in profits or below expectations, sales channel construction or below expectations, beef cattle import industry policies or changes, acquisitions or do not meet expectations and other risks.
