BEIJING CENTURY REAL TECHNOLOGY(300150)：INVESTING IN EEVIA A FAST-GROWING INTEGRATED RAIL TRANSIT O&M BELLWETHER

What's new

Century Real announced plans to acquire a 66.50% stake in EEVIA Consultancy with a consideration of Rmb318.725mn(Rmb126.2918mn in cash and Rmb192.4332mn by issuing 15.406mn shares at a price of Rmb12.49/sh).

Comments

Fair consideration. EEVIA focuses on station equipment management, BAS systems, maintenance management andoperation management. Its original shareholders promised to deliver no less than Rmb40mn, Rmb50mn and Rmb60mnof net profit attributable to shareholders over 2015~2017. The consideration implies 12.0x 2015e and 9.6x 2016e P/Ebased on the promised earnings, lower than the sector average.

Significant earnings enhancement. After the deal, the company’s pro-forma net profit attributable to shareholderswould rise 15.34% to ~Rmb144mn in 2014 and its EPS would rise 12.1% from Rmb0.23 to Rmb0.26.

Potential synergies to facilitate expansion into integrated rail transit operation & maintenance (O&M).1) Promising growth prospects. EEVIA provides O&M solutions for the customer service systems of 15 railwaybureaus in China and covers 400 or 60% of China’s HSR stations. China has built ~700 HSR stations and plans tobuild >100 intercity railways and >1,000 hubs, which should generate substantial O&M demand for railway customerservice systems. The sector is entering a growth phase and enjoys broad growth potential ahead. 2) Value chainexpansion. The deal should help Century Real venture into the integrated rail transit O&M business and EEVIA’sadvantages in market channel, business experience and technology in the railway system should generate synergies,facilitating Century Real’s deployment of station O&M terminals and consolidation of station O&M management andrailway security supervision businesses. In the long term, we are upbeat on Century Real’s continued deployment in therail transit operation market.

Valuation and recommendation

Maintain 2015/16e EPS forecast at Rmb0.31 and Rmb0.41, respectively. Keep TP at Rmb16.46 (40x 2016e P/E),implying 37.7% upside. Maintain BUY.

Risks

Corporate integration misses expectation.

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