Premium Buying 31 Auto Finance Was Questioned Sany Lowered Transaction Price To 3 Billion 380 Million

Sany, which is buying premium shareholder assets at a premium, is forced to lower transaction prices under market pressure.

In December 23rd, the Sany 600031.SH (hereinafter referred to as "Sany") announced that recently, the company consulted with the controlling shareholders' 31 groups on the opinions of the broad masses of investors that the transaction price should be lowered, and the two sides agreed on the transaction price adjustment of the 91.43% equity interest of the transaction target 31 Auto Financing Company Limited (hereinafter referred to as "31 auto finance"). The transaction price was adjusted to 3 billion 380 million yuan from the original transaction amount of RMB 3 billion 980 million yuan, and the transaction price was reduced by 600 million yuan.

In December 11th, Sany announced that the company intends to purchase its controlling shareholder Sany Group Co Ltd (hereinafter referred to as the "31 group") with its own capital of 3 billion 980 million yuan to buy 31 of the 91.43% stake in automobile finance. This transaction constitutes a connected transaction and does not constitute a major asset reorganization.

Sany said: "the acquisition is to further focus on the main business and core business, promote the transformation of the company to" manufacturing + services ", enhance competitiveness and profitability, and promote the internationalization process and digital strategy of the company.

Fan Bing, a mechanical analyst at a securities company in Beijing (a pseudonym), interviewed by an economic reporter in twenty-first Century, pointed out: "the valuation of machinery industry enterprises generally depends on the rationality of PB. After 31 price adjustment, the valuation of automobile finance is normal and reasonable. Considering the long-term development, moderate transaction price reduction is an explanation for investors. After incorporating the scope of the consolidated statements, it will also reduce related party transactions and bring into play the business synergy effect.

Valuation dispute

31 automobile finance was approved and opened by the China Banking Regulatory Commission in October 2010. It is one of the 25 auto finance companies in the country. It mainly provides financial services for the construction machinery industry, and is the first automobile finance company in China's construction machinery industry. According to the assessment, the total value of the shareholders' rights and interests is assessed at 4 billion 620 million yuan.

Public figures show that 31 auto financing achieved 249 million yuan in 2018, an increase of 6.41% over the same period last year, and net profit of 178 million yuan, down 17.21% from the same period last year. Compared with the operating income of 358 million yuan in 2012 and the net profit attributable to the owners of the parent company 137 million yuan, in 2018, 31 of auto financial business revenue fell 30.45%, and net profit increased 29.93%.

As of October 2019, the net assets of 31 auto financing companies were 2 billion 900 million yuan, and the net assets ratio of trading assets after adjusting prices was 1.2 times. But compared with the listed companies in the same industry, the valuation of the 31 auto finance is at a relatively high level.

In contrast to 2718.HK, which was listed in Hongkong in March 2019, the main business of auto finance was 697 million yuan in 2018 and 453 million yuan in net profit. As of June 30, 2019, the amount of equity belonging to the parent company was about 3 billion 993 million yuan. At present, the total market capitalization of Dong Zheng is about 1 billion 942 million yuan. According to this calculation, the static P / E ratio of East Zheng finance in 2018 was about 4.29 times. As at the end of 2019, the net sales rate of the company was about 0.49 times that of 2019.

In this regard, Fan Bing analysis, said: "Hong Kong stocks for the circulation of bad stocks generally discount rate is higher, so the value of the East is relatively low financial value, a relatively low reference value."

It is worth noting that the 31 group also promised that the net accounts receivable of the auto financing company should be 920 million yuan. If the risk of loss of quality or money is lost, the loss portion will be replenished.

On the other hand, the reversal of asset impairment losses is the main reason for the growth of net profit of 31 auto finance in 2017 and 2018. In 2016, the operating expenses of the 31 auto finance were 102 million yuan, of which the impairment loss amount was 75 million 90 thousand yuan. In 2017 and 2018, the operating expenses of the 31 auto finance were -5310 yuan and -2791 million respectively, of which the loss of assets impairment was -6799 yuan and -4275 yuan respectively. In 2017 and 2018, the net interest rate of the 31 auto finance increased by 91.88% and 71.49% respectively due to the reversal of asset impairment losses.

In response to the reasonableness of the valuation of the related party transactions and the loss of accounts receivable and asset impairment of the 31 auto finance, the Shanghai Stock Exchange rushed the inquiry letter at the same time as Sany announced the transaction plan. But up to now, Sany has not responded yet.

Synergetic development

Benefiting from the cyclical warming of the industry, Sany's business performance has even reached a record high since 2017, and its net profit in the 2017-2018 years and the first three quarters of 2019 has reached 17 billion 367 million yuan. Since its listing, Sany has achieved a net profit of 47 billion 535 million yuan, accumulative dividends of 10 billion 633 million yuan, and a dividend rate of about 22.37%. This transaction is not the first time that Sany has used cash to buy large shareholders' holdings of assets.

Fan Bing said: "31 auto finance is actually a construction machinery financial company, which is corresponding to the main business scope of Sany, so the synergy effect is obvious."

After the acquisition is completed, Sany will provide distributors, customers with a package of products, services and financing solutions to reduce financing costs and enhance the competitiveness of products and services. The business structure of Caterpillar and Komatsu, the leading international leader, promotes the transformation from manufacturing to service.

At the same time, the acquisition can help Sany establish and improve the financing channels for overseas sales of various products, accelerate the construction of core financial capabilities such as overseas wind control models and overseas financing talents, and promote the financial support needed for overseas construction machinery sales, thus effectively reducing the cost of overseas financing for companies and customers. It also helps to cultivate overseas financing and business factoring professionals.

In view of the scarcity of its licences, Fan Bing said: "at present, there are only more than 20 companies that have obtained auto financial license, mainly FAW, SAIC and Ping An. For large enterprises, loans can be made through bank car loans. Therefore, license plates are not necessary; however, automobile finance licenses have a certain degree of scarcity value for small and medium-sized car dealers. "

In addition, Wang Huajun, a researcher at state securities, pointed out: "according to the three quarterly report, Sany's cash in hand is as high as 19 billion 300 million, which includes 13 billion 800 million of monetary funds and 5 billion 500 million of tradable financial assets. Through financial companies, it can also enhance the profitability of this part of the cash."

Fan Bing also agreed: "Sany's leverage ratio is at a low level. If 31 auto finance is incorporated into the listed company system, giving full play to the role of financial business, Sany's large book cash is expected to achieve higher return on investment direction, which is good for both sides."