The stock rating of the century interconnection is maintained in "overweight" unchanged

The following is a summary of the contents of the report:

Acquisition of April 50% shares, 2014 fiscal year earnings per share will be diluted 4% to 5%

Summary：

In the century interconnection announced the acquisition of 700 million yuan in the Sichuan April Network (hereinafter referred to as "April") 50% shares, we will be the century interconnection of the stock rating maintained in "overweight" unchanged. We expect the deal to have a 5% per cent diluted impact on the 2014-share earnings of the century interconnection, as financial costs will increase. Management expects the interconnection to become one of the first non-state companies to be awarded broadband licences. In addition to the upward momentum from the provision of cross interconnection services, such licences will also help to reduce the financing costs of the century interconnection.

-century the Internet management believes that plans to extend the data transmission network to a regional terminal access network will further save bandwidth costs: century-wide broadband services and terminal access networks have covered 6 million families in 11 cities (Chengdu, Kunming, Wuhan, Xian, Zhengzhou, Changsha, Guangzhou and Chongqing). At present, the total number of broadband users connected to the century is 1.1 million people.

-second-half performance prospects: Century interconnection is expected to create 220 million yuan revenue in the second half of the year, April of RMB 46 million yuan (ie, profits not included in interest, tax, depreciation and amortization) (EBITDA profit margin of 21%) and RMB 26 million yuan net profit ( Net interest rate is 12%). Annual capital expenditure is expected to be less than 100 million yuan, financed by operating cash flows within the company (no liabilities on the company's balance sheet).

-Other AI shareholders have the option of selling the remaining 50% shares to the century interconnection with a valuation of RMB 700 million: This option is based on the achievement of specific performance indicators over the next three years. The 1.4 billion yuan total traded price means that April's P/E ratio is 26 times times higher.

-century interconnection does not plan to use equity financing methods, so the deal is likely to be financed by debt: assuming that the century interconnection integrates April in the second half of the year and assuming that the century interconnection will be financed at a rate of 7% per cent, the transaction is expected to have a 5% dilution effect on the earnings of the century interconnection we had previously anticipated ( Earnings per share that are not calculated in accordance with US GAAP will be affected by a 4% dilution.