Shanghai Titan Scientific Co.Ltd(688133) (688133)
On December 3, 2021, Shanghai Titan Scientific Co.Ltd(688133) announced that it planned to acquire 77.55% equity of Anhui Tiandi high purity solvent company with RMB 177 million. We believe that through this acquisition, the company has strengthened its brand in the field of high-purity solvents, got rid of the current situation of complete OEM, realized independent and controllable production of high-purity solvents, and solved the two core problems of the company’s current independent products. In addition, as a platform company, we believe that this acquisition may be the beginning of the company’s new journey. We are optimistic that the company will explore new technologies and new fields through industrial funds, integrate mature brands and mature production capacity through mergers and acquisitions, and constantly strengthen the development path of independent brand ability.
Key investment points
Event: 177 million acquisition of 77.55% equity of Anhui Tiandi
On December 3, 2021, Shanghai Titan Scientific Co.Ltd(688133) announced that it planned to acquire 77.55% equity of Anhui Tiandi high purity solvent company with RMB 177 million. Combined with the strategic investment in Cuiying chemical at the beginning of the year, the company has taken the lead in completing the layout of deuterated reagents for nuclear magnetic resonance, liquid chromatography and liquid chromatography-mass spectrometry solvents.
Subject matter: Top 5 brands and production capacity in the world, and the price is relative to PE11 in 2020
Tedia is a brand established by American Tiandi in 1975. Anhui Tiandi acquired this time was jointly established by American tedia and Anhui Longhua fine chemical in 2011, It is one of the major manufacturers producing and operating HPLC grade (liquid chromatography grade), LCMS grade, preparation grade and anhydrous grade solvents in China, and has the only manufacturer and brand use right of tedia brand in Asia Pacific. The company has an annual output of more than 3000 tons of high-purity chromatographic solvents, the high-purity reagents produced account for about 30% of the Asian market, and other imported brands (including sigma Aldrich and thermofisher) about 50% of the products sold in China are produced in the form of OEM in the capacity of the target company.
In terms of the purchase price, the target company will have a revenue of 113 million and a profit of 22.54 million in 2020. According to the acquisition consideration, it corresponds to ps2.2 in 2020 2X, pe11x. Based on the disclosed financial data, we estimate that the annual growth rate is about 15%. Referring to the current comparable company PE in China’s scientific service industry, the acquisition has a high cost performance.
Short term impact: it is expected to consolidate in 2022 and contribute higher growth after the release of new capacity
We expect the company to consolidate in 2022. At present, the growth of the target company is limited by its production capacity. At present, it has a 130 mu production base in Anqing, of which 50 mu is under construction. After completion, the production capacity will reach 10000 tons. We believe that with the release of new production capacity and the synergy of brand power and channel power after M & A, the company is expected to achieve higher growth.
Model advantages: independent + agency companies look for acquisition opportunities in comprehensive cooperation
In the growth history of overseas leading companies, we found that for science service companies with extremely scattered upstream and downstream, M & A integration is an important means of development and growth. The target company used to work closely with Shanghai Titan Scientific Co.Ltd(688133) as a business partner. From the perspective of agency brand, explore the brand high-purity reagents with more than 50 SKUs on the platform. This cooperation method is beneficial for the company to understand the brand influence and quality recognition of the target company from the perspective of customers. At the same time, the target company also provides OEM OEM for Shanghai Titan Scientific Co.Ltd(688133) adamas high-purity reagent. This cooperation method is beneficial for the company to understand the internal quality control, management and operation capabilities of the target company and look for investment opportunities in time. Shanghai Titan Scientific Co.Ltd(688133) there are more than 100 agent brands and OEM manufacturers. We believe that the company’s platform business model is expected to understand the upstream and downstream needs and target qualifications of M & A by means of multi angle cooperation, so as to make M & A integration with higher cost performance.
Long term significance: product enhancement + controllable production, and platform + product start a new journey
Through this acquisition, the company has strengthened its brand in the field of high-purity solvents, got rid of the current situation of complete OEM, realized independent and controllable production of high-purity solvents, and solved the two core problems of the company’s current independent products. In addition, as a platform company, we believe that this acquisition may be the beginning of the company’s new journey. We are optimistic about the company’s future development path of exploratory investment in new technologies and new fields through industrial funds, integrating mature brands and mature production capacity through mergers and acquisitions, and constantly strengthening the ability and profitability of independent brands.
Profit forecast and valuation
Regardless of the impact of this acquisition, we expect that the company’s EPS from 2021 to 2023 will be 1.84, 2.64 and 3.80 yuan / share, corresponding to the closing price on December 5, 2021, and the company’s PE in 2022 will be 86 times respectively. If considering the impact of the merger, based on the stable growth demand of high-purity solvent in China and the company’s better capacity qualification, we roughly estimate according to historical data that the consolidated net profit is expected to be 20 million (considering loan interest and excluding a small part of the company’s related party transactions with the subject matter), the consolidated statement corresponds to about 78 times of PE in 2022, maintaining the “overweight” rating.
Risk statement
Personnel mobility risk in the process of category expansion; Safety risk in logistics process; The uncertainty risk brought by the new e-commerce model to the company’s brand.
