Gao Hua Commentary:Affiliate Kion acquires Dematic,gains access to automation
摘要： NewsYesterdayevening,WeichaiannounceditsapprovalofitsmajoraffiliateKionGroupAG’s(KGX.de,notcovered)p
News
Yesterday evening, Weichai announced its approval of its major affiliateKion Group AG’s (KGX.de, not covered) proposal to acquire Dematic forapproximately US$2.1 bn. The consideration will be paid in cash. Uponcompletion of the transaction, Kion will wholly own Dematic. In addition,Kion announced the following: 1) The combination of Kion (one of thelargest forklift/warehouse equipment/ service providers in the world) andDematic (an automation/supply chain solution provider) is aimed atcreating a global leader in advanced material handling solutions; 2) Kionexpects the purchase price for the shares to amount to ~US$2.1bn (vs.
Dematic 2015 revenue of US$1.8bn and EBIT of US$166mn), based on anenterprise value of Dematic of US$3.25bn; 3) The transaction is expected toclose in 4Q2016 and is subject to customary closing conditions andregulatory approvals.
Implications
A GS report (Profiles in Innovation: Factory of the Future - Beyond theAssembly Line, April 14, 2016) highlighted the likelihood of higher M&A inautomation and robotics, and activity in the space is picking up. Theproposed acquisition, if approved, will provide Kion access to theautomation business and is in line with Weichai’s strategy of expanding itsglobal footprint and increasing services in its revenue mix. AlthoughWeichai only owns 38.25% of Kion, it still consolidates the affiliate as it isthe largest single shareholder. In 2015, c.47% of Weichai’s revenue andc.40% of Weichai’s net income (after deduction of minority interests) wascontributed by Kion.
Valuation
We keep EPS/TP unchanged for Weichai H/A shares. Our 12-m target priceof HK$7.01/Rmb8.09 is based on SOTP. Maintain Neutral on both H/A (lastclose: HK$8.34/Rmb7.63).
Key risks
Higher/lower machinery engine upgrade demand; quicker/slower HDTmarket volume growth; higher/lower Weichai market share in HDT.
bn,2.1,ofWeichai,NewsYesterdayevening,WeichaiannounceditsapprovalofitsmajoraffiliateKi
