Event: China Huiyuan Juice Group announced on Sep 3 that Coca Cola's holding subsidiary, Atlanta Industries Corp. had put forward proposal to acquire all stocks of the company at the price of HKD12.20/share, with 1.95x premium of closing price and acquire all unlisted convertible bonds and rights; the Coca Cola Company publicized that it has obtained three shareholders’ irrepealable approval, which made up 66% of the total. Crucial point of the acquisition lies in approval from government or regulation institution.
China Huiyuan Juice Group closed on HKD4.14/share on Aug 29 while rocketed 164% today, closing at HKD10.94/share, with even larger soaring space.
Our analysis and estimation: 66x PE of acquisition quotation is in sharp contrast with A-share’s panicky decline. Based on our forecast of 2008 net profit of the company, subscribed PE stood at 61x; taking the six leading stocks as an example, static PE and dynamic PE ranged from 33x to 21x, and 47x to 26x respectively. Even if we calculate as the top level, subscribed estimation premium of 39% and 133% still existed.
High PE premium indicates huge investment value of domestic leading consumption industry. As shown in Euromonitor, China juice industry maintained steady growth from 2007 with fruit & vegetable juice the fastest, we forecast it will enjoy CAGR of 14.5% to 2012 (19.1bn kilolitre). From survey on Dec 2007 by AC Nelson, the company’s 100% juice and mid-dense juice continued dominant position within the industry, making up 42.6% and 39.6% of the market respectively (increases of 1.8%ppt and 0.8ppt yoy).
Earnings forecast and rating: We can not tell the rationality of A-share leading listed company based on acquisition quotation; however, recent share price indicated over-pessimistic anticipation. Meantime, we believe its estimation and analysis are worth reflection. From view of long-term investment aspect, we reiterate “Cautious” rating for food & beverage industry.