What happened
On July 22, HC announced it had entered into anagreement to acquire a ~2.49% equity interest inHohhot Jingu Rural Cooperative Bank, a commercial bankbased in Inner Mongolia. HC will pay the Rmb57.9mnconsideration in cash.
Comments
Target company’s valuation is reasonable. Hohhot JinguRural Cooperative Bank had net assets of Rmb2.1bn, Rmb2.4bn,and 2.6bn in 2013, 2014 and 2015 (as of end-June) and profitafter tax of Rmb488mn/449mn in 2013/14. The deal implies thebank’s total value is Rmb2.325bn, representing 0.89x 2015e P/Bor 5.2x 2014e P/E. We believe this valuation is reasonable for acommercial bank of its size.
Potential synergies in B2B Internet finance. To facilitateonline B2B transactions, HC has become involved in a number ofvalue-added services, such as micro-finance for SMEs. Thecompany currently offers Mai Mai Loans, a finance productdeveloped by HC’s JV with Digital China, as well as otherproducts in cooperation with financial institutions. Hohhot JinguRural Cooperative Bank’s products & services primarily consist ofbank deposits, short-, medium- and long-term loans & advances,settlement services within China, as well as other businessesapproved by the China Banking Regulatory Commission (CBRC).By investing in the commercial bank, HC is able to exploreopportunities to work with the bank and provide Internet basedmicro-finance products to its users.
Bank deal to enhance its B2B2.0 business. HC’s latest dealis consistent with its management’s commitment to betterdevelop its B2B platform in verticals and Internet finance,following the acquisition of ZOL and garment industry verticals.We expect to see further acquisitions in the near future, asHC seeks to fulfill its promise to cover more verticals.