GREAT RIVER SMARTER LOGISTICS(002930)：ACQUISITION BEATS;LONG-TERM GROWTH POTENTIAL EMERGES

　　What's new
　　Great River Smarter Logistics plans to acquire 100% of Nantong Yushun Energy Group Co., Ltd. and Nantong Yusheng Energy Co., Ltd. in cash.　Once the deal is done, Great River Smarter Logistics will indirectly hold 100% of Winsway Energy （Nantong） Co., Ltd. The core assets of Winsway Energy （Nantong） are 74 storage tanks （total tank capacity of about 620,000cbm） and ancillary facilities. The acquisition is still in the planning stage and the specific agreement and plan are subject to further communication and approval.
　　Comments
　　The acquired assets are of good quality, as evidenced by the cluster effect observed in the firm’s business in the Yangtze River Delta　region. The acquisition target is located in Nantong, Jiangsu province, and its storage area is qualified to provide storage and transportation services for 28 petrochemical products, including crude oil, gasoline, xylene, alcohols, aromatic hydrocarbons and MTBE, with high asset quality. The company currently owns 475,000cbm of storage tank capacity in Nantong through its subsidiary Nantong POWER Shell Petroleum Logistics.
　　Following the acquisition, the company's storage tank capacity in Nantong will increase to 1.10mn cbm. As a result, we expect competition in Nantong to decrease. In addition, the increasing density of the company's storage tanks in the Yangtze River Delta region will foster the emergence of economies of scale in the area.
　　Interest expense may increase after the acquisition, but it may boost　long-term profit by Rmb70mn. According to the company, the unit price of the storage tank acquired from Nantong POWER Shell Petroleum Logistics in 2014 was approximately Rmb1,090 per cbm. Taking into account an estimated appreciation of 25% in the value of the storage tank assets, we estimate the transaction consideration of the acquisition to be around Rmb844mn, implying a unit price of the storage tank of about Rmb1,362 per cbm. As of 1Q23, the firm had Rmb221mn of cash on hand, and we estimate that the acquisition will increase bank borrowings by Rmb650mn and interest expense by Rmb30mn p.a.
　　Based on the average earnings from the firm’s storage tank capacity in the Yangtze River Delta region, we estimate that the storage tank capacity of the acquired companies will generate Rmb70mn （implying earnings of Rmb113 per cbm） once it reaches maturity, accounting for 29% of the company’s 2022 net profit. However, we expect the Rmb70mn of earnings to be realized two years after the acquisition, as the newly acquired targets require a certain ramp-up period.
　　Upbeat on long-term growth driven by M&A. The company has　traditionally mainly increased its storage tank capacity through M&A.
　　According to our estimates, after the completion of this acquisition, the total storage tank capacity of companies in which the company holds a stake will reach 4.91mn cbm, while the storage tank capacity of companies in which the company holds a controlling stake will reach 3.87mn cbm, up 14.1% and 19.1% from end-2022. This further demonstrates the rationale behind the company's M&A growth.
　　We believe the company will continue to expand its market share through M&A as construction of new terminals and storage tanks can be challenging. We estimate the company's market share in storage tank capacity is only 10%, indicating notable potential for industry consolidation. As a leader in the domestic market, the company has the financial resources and willingness to make new acquisitions, and we are positive on its long-term growth.
　　Financials and valuation
　　We maintain our earnings forecasts. The stock is trading at 27.9x and 22.5x 2023e and 2024e P/E. We maintain an OUTPERFORM rating and our target price of Rmb24/sh, implying 31.8x and 25.6x 2023e and 2024e P/E, offering 13.9% upside.
　　Risks
　　Disappointing earnings of new projects; worsening of industry business climate; safety accidents related to chemical product warehousing and storage.
【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。

   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。