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Rongxin Power Electronic Co Ltd:Business Integration Smoothly Underway

发布时间:2016-06-28    研究机构:兴业证券

Company Profilel

Rongxin Power Electronic Co., Ltd. engages in R&D, engineering design and equipmentmanufacture of static VAR compensators (SVC) high power, Power Filters (FC), MABZ, HVFrequency Converters (HVC) and other related electronic equipment.

Event

Rongxin Power Electronic Co,. Ltd. disclosed the assets transfer proposal in June 28: Thecompany is going to transfer its stakes in Ringxin Power Electric (84.91%), Rongxin ElecticalMotor (90%) and Rongxi High Tech. Electric (80.01%) to Wolong Electric. The total assetstransferred account to CNY 219.80million.

The company is expected to invest an additional CNY 140million in cash in Montnets, itswholly-owned subsidiary, meaning that the registered capital of Montnets will increase from60million to 200million.

Commentl

The acquisition integration is going smoothly, opening up a new chapter for asset disposal.

The company finished the reshuffling of its management team on April 15, 2016. The formerchairman of Montnets is elected to be the sixth chairman of the board of directors and willtake the responsibility of business integrating following the acquisition of Montnets. Throughstreamlining Rongxin’s existing power equipment businesses and disposing current assets, thecompany will accelerate its transformation and upgrading process towards mobile applicationsupporting service provider.l The company pledged to transfer its stakes in Ringxin Power Electric (84.91%), RongxinElectrical Motor (90%) and Rongxi High Tech. Electric (80.01%) to Wolong Electric, which are allkey components of the former power equipment business. The three subsidiaries generated acombined CNY 3.26million operating profit and CNY 14.23million net profit, having negligibleimpact on the company’s overall profitability and resulting a PB of 1.20x. The assetstransferred are priced at CNY 220million, of which CNY 183million is attributed to the listedcompany.

The company plans to center its development on the ‘cloud-telecom + cloud computing +cloud commerce’ strategy.

The company is expanding its footprint to the mobile data intelligent traffic flow platform,mobile audio and video telecom platform via its wholly-owned subsidiary Montnets. It hasbuilt a cloud-telecom platform featuring ‘mobile instant messaging + intelligent traffic flowmanagement + mobile video and audio’. The company continues to expand its intelligenttraffic operation through launching products such as Traffic Beibei, Traffic Red Packet. Also thecompany is has mapped out strategy for the development of mobile AV communicationthrough investing in Zhiyan Tech. In the long run, the company will focus on constructing acloud platform to meet the demand for client business intelligent, mobile payment, wirelessmedia and mobile marketing.

Benefitting from the development and permeation of new applications in the mobile internet,Montnets achieved net income of CNY 64.89million in 16Q1through expanding the marketshare of corporate SMS, its core business, based on existing scale and its reputation. Thecompany’s investment in Montnets will help improve its competency in the field of corporateSMS, accelerating the company’s continued investment and expansion in intelligent trafficoperation market.

Investment Recommendation and Earnings Forecasts

The company is going smoothly after acquiring Montnets and shows steady growth. Thecompany is rolling out its business strategy of “cloud communication + cloud computing +cloud commerce”. We expect the new executives will bring vigor to the company througheffectively integration. Reiterate OUTPERFORM. We made a EPS forecast for the company atCNY 0.40in 2016, CNY 0.58in 2017, and CNY 0.83in 2018.

Potential Risks: Slower-than-expected acquisition integration process; worse-than-expectedmarketing for intelligent traffic operating business

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