\u3000\u30 Xuchang Ketop Testing Research Institute Co.Ltd(003008) 88 Winner Medical Co.Ltd(300888) )
Event: the company issued an acquisition announcement and planned to purchase 55% equity of Longtai medical from Wu Kangping, Huang Lepei and Wu Di with its own capital of 728 million yuan. Longtai medical is mainly engaged in the R & D, production and sales of high-end wound dressings, which has strong synergy with the company. After the merger, the two sides work together, and the development of medical dressings business is worth looking forward to.
Comments:
The valuation corresponding to the acquisition is low, and it is proposed to acquire all remaining equity in the future. The target companies of this acquisition are Longtai medical, its wholly-owned subsidiaries Xi’an longtem medical, Longtai silica gel and Hangzhou Shengyi technology. Longtai medical, Xi’an longtem and Longtai silica gel are mainly engaged in high-end wound dressing business, and Shengyi technology is mainly engaged in the sales and operation of wound dressing on e-commerce platform. The estimated market value of Longtai medical in this acquisition is 1.337 billion yuan, corresponding to 15 times PE in 21 years. After the completion of the transaction, the board of directors of Longtai medical consists of five directors, three of whom are nominated by Winner Medical Co.Ltd(300888) and appoint the person in charge of finance, the person in charge of risk control and compliance and one senior executive. The core team promises to serve in Longtai medical for no less than 5 years. If the compound annual growth rate of non net profit deduction of the target company from 2021 to 26 is not less than 5%, or the cumulative non net profit deduction of the target company from 2022 to 26 is not less than 475 million yuan, and Winner Medical Co.Ltd(300888) holds the equity of the target company and is approved by the regulatory authority, Winner Medical Co.Ltd(300888) will acquire all the remaining equity with the non net profit deduction of the target company in 2026 as the valuation multiple.
The main business income of Longtai medical is growing rapidly, and the high-end medical dressing industry is in a leading position. Longtai medical has the industry-leading R & D, production and sales capacity of high-end wound dressing, which has been recognized by international and Chinese high-quality customers, mainly focusing on overseas income. In 2021, Longtai medical achieved an income of 355 million yuan, a decrease of 1.47% and a net profit of 863739 million yuan, a decrease of 32.61%. This was mainly due to the income of epidemic prevention products of 130 million yuan in 20 years. Excluding this impact, the income of the main business of medical dressing increased by 30%. In 2021, the revenue of high-end wound dressing products of Longtai medical exceeded 280 million yuan, accounting for a high proportion of revenue and leading the market share.
The high-end wound dressing industry continues to grow, and there is a large space for domestic substitution in the Chinese market. According to the report released by QY research, the global market scale of high-end wound dressing in 2020 was US $5.846 billion, and it is expected to reach US $7.23 billion in 2027. At present, the high-end medical dressing market is dominated by overseas brands. With the increasing pressure on fee control in European and American countries, international brands prefer to choose top enterprises with the advantages of capacity scale and quality control, and the industry concentration is expected to continue to be concentrated. China’s Hospital high-end wound dressing market is in the initial stage of rapid growth, dominated by overseas brands. With the upgrading of China’s medical demand and more comprehensive medical insurance coverage, and Chinese brands have cost advantages, there is more room for domestic alternative development. Longtai medical and Winner Medical Co.Ltd(300888) revenue scale ranks in the forefront of the industry and is expected to benefit from the development of high-end medical dressing industry.
After the merger and acquisition, there are obvious synergy advantages, and strong forces work together to promote the development of medical dressing business. After the acquisition, the company will achieve synergy in R & D, channel and management to accelerate the development of medical dressing business. 1) In terms of R & D, Wu Kangping, founder of Longtai medical, has more than 20 years of clinical experience, designed and innovated high-end wound dressings, and actively developed solutions for household stoma, wound care and skin management. Winner Medical Co.Ltd(300888) has 31 years of history and rich experience in the development of medical dressings. The cooperation between the two sides will strengthen product R & D capabilities and build a leading wound dressing product in China. 2) In terms of channels, Longtai medical has established long-term cooperative relations with international head customers, covering more than 600 Chinese hospitals, while Winner Medical Co.Ltd(300888) covers more than 4000 hospitals and 120000 pharmacies, with more than 9 million online fans. In the future, the two sides can share customers, channels and other resources and gain more market share. 3) In terms of management, Winner Medical Co.Ltd(300888) has leading intelligent manufacturing system, quality management experience, digital operation system, non-woven fabric procurement system, omni-channel operation ability, etc., which can enable Longtai medical production and management and improve the competitiveness of the company in the future.
Profit forecast and investment rating: as the price of epidemic prevention materials of the company returns to normal and the export revenue decreases greatly, we lowered the EPS forecast for 202123 to 2.99/3.61/4.97 yuan (the original value is 3.71/4.43/5.33 yuan), and the current stock price corresponds to 16.46 times PE in 22 years. The Company repurchased Tus-Design Group Co.Ltd(300500) million yuan of shares with its own funds, and 500 million yuan had been repurchased as of April 2022 for equity incentive or employee stock ownership plan, demonstrating the management’s confidence in long-term development. We are optimistic about the development of the company’s dual main industries of medical dressing and health consumption. After the M & A of Longtai medical is implemented, it is expected to acquire more high-quality medical targets in the future, strengthen the company’s competitive advantage and market position, weaken the impact of epidemic prevention materials on the performance, and the performance inflection point is worth looking forward to, maintaining the “buy” rating.
Risk factors: reduced demand for downstream epidemic prevention supplies, rising prices of raw materials, increased losses from exchange rate fluctuations, intensified industry competition, etc.
