Incident: Orekin issued an announcement. On December 13, Huarui Fengquan Co., Ltd., a subsidiary of the company, obtained a “Business Registration Certificate” relating to the foreign exchange registration of this transaction. The foreign exchange registration procedure for this transaction has already been completed. As of December 13, all the prerequisites for the offer under this transaction have been met. The offeror will then issue an offer document before December 20, 2024 or December 20, 2024 in accordance with the requirements of the Hong Kong Special Administrative Region's regulatory regulations.

Reviews:

The two-piece can industry cycle is low, and integration is expected to catalyze an improvement in the pattern.

The two-piece can industry is currently at a low level. 1) The capital expenditure cycle is low, and we expect that future leaders will be less willing to expand production in China; 2) low profitability. The two-piece can industry has been oversupplied for a long time. With the gradual improvement of the industry's price adjustment mechanism, tank prices have basically bottomed out in 24Q2. As aluminum prices rise, 24Q3 can prices have increased sequentially and Q4 is stable. The price adjustment mechanism is smooth, the pressure transmission of raw materials is smoother, and the profit margin in the two-piece tank process is expected to stabilize.

After the merger and acquisition is implemented, the company's industrial collaboration capabilities are expected to increase, and the scale effect is expected to increase. We expect the first step to reduce costs and increase efficiency through internal exploration; looking at the long-term cycle, as the industry is further concentrated and the profit assessment of central enterprises within the industry is strengthened, the ability of the two-piece tank faucet to bargain downstream is expected to increase, and profits are expected to be steadily restored to a reasonable level.

The three-piece can has deep customer relationships and strong profitability. The company has been steadily supplying three-piece cans to Red Bull in China for a long time. Due to deeper customer bonds and a more stable pattern in the three-piece can industry, the average price and profit level of the company's three-piece can remain high.

Profit forecast: We expect the company's net profit to be 0.83/0.93/1.02 billion yuan for 2024-2026, and the corresponding PE is 18.4X/16.4X/15.0X respectively; if the COFCO merger is taken into account, the initial assumption is 100% consolidation, the overall profit for 25-26 will be 1.25/1.45 billion yuan, respectively, and the corresponding PE will be 12.2X/10.5X, respectively.

Risk factors: M&A falls short of expected risk, downstream demand falls short of expected risk, industry competition increases risk