Investment Rating - The report maintains a "Buy" rating for the company with a target price of HKD 5.4, indicating a potential upside of 33% from the current price of HKD 4.03 [3][4]. Core Insights - The company has signed an agreement to acquire Merck's global surface solutions business for EUR 660 million (approximately RMB 5.2 billion), which is seen as a significant milestone for future growth [1]. - The acquisition is expected to enhance the company's market share, particularly in high-end applications such as automotive and cosmetics, where Merck holds a 22% global market share in pearlescent pigments [1]. - The report projects net profits for the years 2024, 2025, and 2026 to be RMB 310 million, RMB 400 million, and RMB 510 million, respectively, with corresponding EPS of HKD 0.25, HKD 0.32, and HKD 0.40 [1][7]. Summary by Sections Acquisition Details - The acquisition of Merck's surface solutions business is expected to significantly increase the company's market share and enhance its competitive edge in high-end markets [1]. - The transaction is valued at EUR 660 million, with an EV/EBITDA multiple of 10.6x, which is considered reasonable compared to industry averages [1][8]. Financial Projections - Revenue projections for the company are as follows: RMB 1.06 billion in 2023, RMB 1.53 billion in 2024, RMB 1.76 billion in 2025, and RMB 2.02 billion in 2026, reflecting a growth rate of 16.06% in 2024 and 15.10% in 2025 [2][7]. - The company expects to maintain a gross margin around 49% to 51% over the forecast period [2][7]. Valuation Analysis - The report employs both comparable company analysis and DCF methods for valuation, concluding a target price of HKD 5.4 based on a PE multiple of 22x and a WACC of 7.4% [8][10]. - The DCF analysis estimates the company's market value at HKD 59 billion, supporting the target price of HKD 5.4 [8][10].
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