\u3000\u30 Xuchang Ketop Testing Research Institute Co.Ltd(003008) 88 Winner Medical Co.Ltd(300888) )
Core view
Event: the company plans to use its own funds of 728 million yuan to acquire 55% equity of Longtai medical from Mr. Wu Kangping, Ms. Huang Lepei and Mr. Wu Di.
Comments:
Acquire 55% equity of Longtai medical, and take the performance in the next five years as the condition for the acquisition of remaining equity. The target companies of this transaction are Longtai medical, its wholly-owned subsidiaries Xi’an longtem, Longtai silica gel and Shengyi technology. Other subsidiaries of Longtai medical that are not related to high-end wound dressing business will be divested before the delivery date. The acquisition price is based on the total equity valuation of 1.323 billion yuan of Longtai medical, corresponding to 15x PE in 2021. Meanwhile, if the target company’s compound growth rate of deducting non net profit in 21-26 years is greater than or equal to 5%, or the cumulative deducting non net profit in 22-26 years is greater than or equal to 475 million yuan, and the company still holds the equity of the target company and is approved by the regulatory Department, the company will acquire all its remaining equity in 2027 with the corresponding multiple of deducting non net profit of the target company in 2026.
Longtai medical is a leading enterprise in high-end dressing in China. This acquisition will promote the complementary advantages of medical business. Longtai medical is mainly engaged in the R & D, production and sales of high-end wound dressings, focusing on export. It has established a relatively perfect sales system and channel network in the international market. Its products are sold to America, Europe and other places, and has established stable cooperative relations with many international well-known medical device brands. At the same time, Longtai actively expands the Chinese market, and its domestic sales business includes its own brand innomed sales and OEM production. In 2021, Longtai medical achieved an income of more than 350 million yuan, of which the income of high-end dressing products exceeded 280 million yuan, ranking a leading position in the industry among China’s high-end dressing enterprises. This acquisition is highly consistent with the company’s strategy of building a leader in the high-end wound dressing industry, and forms scale and synergy with the help of the advantages of both parties in customers, markets, products, R & D and production.
The global high-end dressing market has large growth space, and the industry concentration is expected to increase. According to the QYResearch report, the global high-end dressing market will reach US $5.85 billion in 2020 and is expected to reach US $7.23 billion in 2027. With the increasing pressure on fee control in the European and American markets, international customers tend to large-scale manufacturers with stable production capacity and quality. China’s high-end dressing export market will maintain steady growth and its share is expected to focus on the leader. This transaction is expected to promote the company and Longtai to form a leading effect through customer channel sharing and product research and development, so as to obtain greater market share and higher income growth.
Investment suggestion: the company’s medical and consumer goods businesses develop in a coordinated manner, the channels are continuously optimized, and the performance growth potential is expected. As the acquisition transaction has not been completed, the impact of consolidation of Longtai medical will not be considered temporarily. We maintain the profit forecast. It is estimated that the net profit attributable to the parent company from 2021 to 2023 will be RMB 13.1/16.4/2.04 billion respectively, corresponding to the current market value PE of 20 / 16 / 13X respectively, maintaining the “buy” rating.
Risk tip: the epidemic affects offline retail, the channel expansion is less than expected, and the industry competition is intensified.
