COSCO: Better than expected dry bulk asset injection plan

Guotai Jun'an

● The company announced the plan for the injection of dry bulk cargo assets. The main contents of the plan are: the proposed assets are the bulk cargo assets of COSCO Group, which are 100% equity of COSCO Bulk Cargo Company, 100% equity of Qingdao Ocean Shipping Company, 41.52% equity of Shenzhen Ocean Shipping Company, and the dry bulk cargo assets held by COSCO Hong Kong Group; The total number of shares to be issued is no more than 1.297 billion shares, which will be issued in two times. The first is to be issued to COSCO Group at a price of 1.849 billion yuan, and the second is to be issued to specific investors at a price of no less than 1.849 billion yuan.

● The scheme is better than our expectation. It is mainly reflected in two aspects. First, the appraisal value of the assets to be acquired is lower than our forecast, which reduces the issued share capital, thus improving the EPS after acquisition. The estimated value of the assets to be acquired in the company's announcement is 34.6 billion yuan, which is lower than the value we previously judged, reducing the additional share capital; Second, the company actually adopted the way of equity+cash acquisition, which also reduced the number of shares issued. The company plans to issue no more than 1.297 billion shares, which is not enough to purchase assets in the form of cash or loans from financial institutions. If the price of the second offering is 25 yuan, the scale of the company's cash or debt acquisition is about 7.8 billion yuan. It is predicted that the net profit in 2007 after the acquisition will be 12.02 billion yuan, which is basically consistent with our prediction of 12.3 billion yuan. According to the simple calculation of net profit and total equity after the acquisition, the EPS of the company after the acquisition is 1.17 yuan.

● The impact of the acquisition on the company is reflected in two aspects: first, the acquisition of dry bulk assets can reduce the cyclical volatility of the company's business. We can see that the three major businesses in the shipping market: container, dry bulk and tanker transport business have different cyclical characteristics, and the combination of different businesses can reduce the company's business volatility; Second, the most intuitive impact is to increase the company's performance. The company predicts that after the acquisition, the net profit in 2007 will be 12 billion yuan, and it plans to issue no more than 1.297 billion shares. According to the above figures, the EPS in 2007 will be 1.17 yuan. We think this figure should be conservative. According to the current situation of the dry bulk market, we judge that the net profit of dry bulk assets in 2007 will be about 12 billion yuan, plus COSCO The current business profit, under optimistic expectation, the net profit of the company after the acquisition is about 14 billion yuan, and the EPS is 1.37 yuan according to optimistic judgment.

● Long term optimistic about the company's development: we analyzed the logic of investing in COSCO in the report COSCO: A Leader in the Shipping Market. We still emphasize that we are optimistic about the company's development in the long run: the continuous asset injection is expected to bring the company's growth until 2010, and it is expected that the company may acquire the group's tanker transportation assets in the future; The recovery of container transport business helps to improve performance; The injection of dry bulk assets improves the company's value and brings about the thickening of performance.

● Maintain the overweight rating, and raise the target price to 35 yuan: the dry bulk asset injection plan is better than our judgment, and it is expected that the company's EPS will be conservative to 1.17 yuan in 2007 after the acquisition is completed, and the company can be compared China Shipping Development 、 COSCO Shipping The valuation level continued to improve, so we raised the company's target price to 35 yuan.