CICC: Target price of HK$5.29 for Tiangong International (00826)'s “outperforming the industry” rating

The Zhitong Finance App learned that CICC released a research report stating that it gave Tiangong International (00826) a “outperforming industry” rating, with a target price of HK$5.29. On September 15, Tiangong International announced that Tiangong Hard Alloy, an indirect subsidiary, signed a memorandum of equity cooperation with Henan Zuneng Precision and its original shareholders to acquire about 48.42% of Zoneng Precision's shares for 46 million yuan and subscribe for additional shares for 5 million yuan. The shareholding ratio will reach 51% after the transaction is completed. The transaction corresponds to the pre-investment valuation of the target of 95 million yuan. The pricing refers to its estimated net profit of 9.5 million yuan after tax in 2026. Currently, the two sides have only signed a memorandum of equity cooperation. Subsequent audits and evaluations are still needed, and there is still uncertainty about whether the transaction can be completed.

CICC's main views are as follows:

Zoneng Precision Tools has the capacity to mass-produce miniature drills and has covered more than 100 PCB customers

Zuneng Seiko focuses on R&D, production and sales of precision tools for PCB processing. It has a monthly manufacturing capacity of 5 million PCB drills, can mass-produce PCB drills with a minimum diameter of 0.03 mm, and provides standard and customized precision tool products to more than 100 well-known domestic PCB manufacturers. Its management team has more than 20 years of experience in drill bit development and manufacturing, and has 15 utility model patents and 2 software copyrights. The bank believes that Zoneng Precision has both precision processing capabilities, mature products and customer base, and is expected to support Tiangong's expansion of the PCB precision tools business.

Accelerate market entry through mature customer channels, and improve the integrated layout with materials and processing capabilities

The bank believes that the core significance of this proposed acquisition is to reinforce the customer and finished product delivery process in the PCB drill business. On the one hand, Zoneng Precision has an existing product and customer base, which is expected to help Tiangong shorten the cycle of independently developing customers and establishing supply relationships, accelerate entry into the PCB drill market, and promote the expansion of the customer structure from traditional tool applications to high-end PCB precision processing. On the other hand, Tiangong's accumulation in the preparation of ultra-fine grain hard alloy materials and bars is expected to complement Zoneng Precision's drill bit design, precision processing, and terminal application experience, supporting the development of smaller diameter and higher length ratio PCB drills. If the transaction is successfully implemented and effective integration is achieved, the company is expected to further penetrate materials, bars, finished drill products and customer applications, and improve the closed commercial loop of the PCB drill business.

Continue to promote high-end transformation and be optimistic about the growth space of the precision tools and high-end materials business

The bank believes that the proposed holding of Zoneng Precision is an important step in the company's expansion to high-end precision tools. Based on the tool steel, high-speed steel and tool business, the company continues to expand high-end products such as precision cutting tools and titanium alloys. This investment is expected to further strengthen the market entry of the PCB drill business and promote the transformation of material capabilities into terminal products and customer value. The bank expects the company's PCB tool business to gradually contribute to the company's profit.