Lianhua announced that it plans to acquire the whole interest in a property owned by its parent company Bailian Group (600827.SS, NR) through issuance of new domestic shares. The acquired property, Yiwu City Life, is expected to become one of the largest flagship shopping malls in Yiwu City, a key city in Zhejiang province. The acquisition remains under discussion and is subject to further negotiation among relevant parties. The company has signed the framework agreement with Bailian but not yet a definitive transfer agreement. The consideration amount is yet determined but the new domestic share is expected to be HKD3.97, 12.75% discount to the average closing price in the past 30 consecutive trading days. It will resume trading today.
Deutsche Bank comment
Lianhua views a high potential development in Yiwu city. The company
expects to achieve a stable rental income from leasing retail space at the property, as well as to develop its hypermarket business. The acquisition through issuance of new domestic shares could be a support by its parent company Bailian Group. Lianhua is now implementing internal reform to turn around the downward earnings trend. SOE reform is just at conceptual stage with no details yet. We maintain Hold.