Incidents:
On the evening of May 24, 2024, Ziguang Co., Ltd. issued major asset purchase plans and announcements such as terminating the issuance of A shares to specific targets in 2023.
Xinhua 3 is a leading supplier of cloud computing infrastructure construction and smart application services in the domestic ICT infrastructure market. According to IDC data, in 2023, the company ranked first in the market share of enterprise-level WLAN, IT unified operation and maintenance software, and network management software in China; second in market share of Ethernet switches, enterprise network routers, x86 servers, security hardware, and hyperconvergence; and third in storage market share.
The share purchase ratio of Xinhua 3 was adjusted to 30%. The termination of fixed increase matters took into account factors such as performance obligations under the previous agreement, its own monetary capital situation, and available financing channels, and the company adjusted the purchase of minority shares in Xinhua 3. (1) The purchase ratio was adjusted from 49% to 30%, and the payment amount was adjusted from US$3.5 billion to US$2.143 billion (share price unchanged); (2) After completion of the delivery, Ziguang International will relinquish the priority purchase rights for the remaining 19% of the shares in Xinhua, and HPE Cayman has the right to sell to third parties that meet specific conditions in one go; (3) The transaction capital is the listed company's own funds and bank loans. Currently, it is planned to apply for a loan of no more than RMB 10 billion or equivalent from the bank to terminate the fixed increase; (4) The expected delivery date is 2024/8/31, and the grace period ends The date is 2024/10/21.
It is expected to increase net profit to mother without diluting equity
The acquisition of three minority shares in Xinhua is expected to further develop synergies, consolidate the dominant position in the market, and enhance the profitability of listed companies. In 2023, Xinhua's net profit for the third year was RMB 3.411 billion, and the profit corresponding to the purchase of 30% shares was RMB 1,023 million, or 48.64% of the net profit of listed companies in 2023.
Furthermore, the current plan does not use a fixed increase method to raise funds, which will not cause equity dilution.
Profit Forecasts, Valuations, and Ratings
Considering that this transaction still has risks such as approval and capital raising, we are not considering the completion of the acquisition. We expect the company's 2024-2026 revenue to be 854.33/932.11/100,606 billion yuan respectively, with year-on-year growth rates of 10.51%/9.10%/7.93%, and net profit to mother of 25.64/30.14/ 36.28 billion yuan respectively, with year-on-year growth rates of 21.92%/17.56%/20.37%, EPS 0.90/1.05/1.27 yuan/ Shares, 3-year CAGR is 19.94%. Since the company is a global leader in next-generation cloud computing infrastructure construction and smart application services in the industry, based on comparable company valuations, we gave the company 31 times PE in 2024, with a target price of 27.79 yuan, maintaining a “buy” rating.
Risk warning: upstream supply chain risks; downstream customer demand falls short of expectations; overseas business development falls short of expectations; progress in acquiring minority shareholders' rights falls short of expectations, etc.