Implementing mergers and acquisitions restructuring, Silinjie (688115.SH)'s stock price has hit the 20cm limit-up.
On the evening of September 24th, Silinjie disclosed a preliminary plan for the reorganization, in which the company intends to purchase 71% of the shares of Qingdao Kokai Electronic Research Institute Co., Ltd. (hereinafter referred to as "Kokai Electronics" or "Target Company") by issuing shares and paying cash to the transaction counterparties, and to raise supporting funds.
Silinjie entered the A-share market through an IPO in 2022. After going public, the company's operating performance changed dramatically. In 2023, the net profit attributable to the shareholders of the parent company (hereinafter referred to as "Net Profit") was less than ten million yuan, which was less than 14% of the net profit of the year before going public.
The target company of this acquisition once attempted an A-share IPO but failed. The target company has a group of state-owned enterprise customers, but there is a high dependence on key customers, with the top five customers contributing 99% of its operating income. In the first eight months of this year, the target company's operating income and net profit are expected to decline significantly.
Silinjie stated that the due diligence and evaluation work on the target company have not been completed. However, the valuation of Kokai Electronics before the IPO was close to 3 billion yuan, far higher than the current market value of Silinjie's 1.7 billion yuan.
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In this acquisition, Silinjie used a partial cash acquisition and only acquired 71% of the shares, seemingly deliberately avoiding a reverse takeover transaction. Can Silinjie ultimately achieve the expected results?
Attempting to make up for shortcomings through mergers and acquisitions
Silinjie, which has changed its operating performance, is trying to break through with the help of mergers and acquisitions.
On the evening of September 5th, Silinjie issued a suspension announcement, stating that the company was planning to purchase Kokai Electronics' shares by issuing shares and paying cash. On the evening of September 24th, Silinjie disclosed the transaction plan, which also announced that the stock would resume trading from September 25th.
According to the transaction plan, Silinjie plans to acquire 71% of Kokai Electronics' shares from 23 transaction counterparts, including Wang Jiangang and other members of the Wang family, as well as Guohua Industrial Development Fund (Limited Partnership) and other funds. The transaction is a combination of issuing shares and paying cash, with the share issuance price at 17.26 yuan per share. At the same time, the company plans to raise supporting funds from no more than 35 specific targets to pay for the cash consideration of this transaction, intermediary agency fees, transaction taxes and other expenses.Silinjie specializes in the field of industrial automation testing, mainly engaged in the design, research and development, production, and sales of industrial automation testing products such as embedded intelligent instrument modules, with the main products being embedded intelligent instrument modules.
Kaike Electronics' main business is the research and development, production, and sales of high-reliability microcircuit modules, with main products including motor drivers, light source drivers, signal controllers, and other microcircuit products.
Silinjie stated that both the company and the target company's products are modular electronic components, and both have modular and miniaturized hardware designs in terms of product form. Therefore, both parties' main businesses belong to the same industry and have synergistic space in terms of market expansion, product categories, and technological accumulation.
In the view of market insiders, Silinjie values the scientific and innovative attributes of Kaike Electronics. Silinjie disclosed that the target company places great emphasis on innovation and research investment, and has been focusing on the field of high-reliability microcircuits for nearly two decades, accumulating experience in the development of microcircuit products such as circuit design, current control, and overcurrent protection. It is a high-level technology-independent and self-reliant high-tech enterprise that achieves the import substitution of electronic products.
At present, Silinjie's operating performance is not satisfactory to the market.
On March 14, 2022, Silinjie went public in the A-share market by passing the IPO. Before going public in 2020 and 2021, the company's operating income was 189 million yuan and 222 million yuan, respectively, with a year-on-year increase of 59.11% and 17.78%; net profit was 63 million yuan and 66 million yuan, respectively, with a year-on-year increase of 112.36% and 5.10%.
After going public, the operating performance changed. In 2022 and 2023, the company's operating income was 242 million yuan and 168 million yuan, respectively, with a year-on-year change of 9.01% and -30.55%; net profit was 54 million yuan and 9 million yuan, respectively, with a year-on-year decrease of 18.18% and 83.37%.
In the first half of this year, the company's operating income and net profit were 76.38 million yuan and 8.03 million yuan, respectively, with a year-on-year increase of 11.70% and 181.30%. Although the net profit increased significantly, it is still at a low level.
In the secondary market, Silinjie's stock price broke the issue price on the first day of listing. As of September 25 this year, although affected by the acquisition, the stock price rose to the daily limit with a 20cm increase, closing at 25.80 yuan per share, but it still fell by 60.70% compared to the issue price of 65.65 yuan per share.
Kaike Electronics' dependence on major customers has been inquired about.Is the acquisition of Ke Kai Electronics by Silinjie this time a high-quality asset?
In June 2023, Ke Kai Electronics had submitted a listing application to the Shenzhen Stock Exchange, planning to go public on the Growth Enterprise Market, with a planned fundraising of about 1 billion yuan. The funds were to be used for the expansion and intelligent upgrade of micro-circuit module production capacity construction projects, integrated circuit research and development and industrialization construction projects, etc.
On March 17th of this year, Ke Kai Electronics also completed the second round of inquiry responses and updated the prospectus. However, a month later, on April 15th, it withdrew its application and actively terminated the IPO process.
The reason for the failure of the IPO was not disclosed by Ke Kai Electronics. However, during the IPO period, Ke Kai Electronics was questioned by the market.
Ke Kai Electronics was established in July 1997, and the Wang family, including Wang Jianhui and Wang Jiangang, collectively controlled 81.51% of the company's shares.
The main customers of Ke Kai Electronics are large state-owned enterprises, including the China Aviation Industry Group, the China Aerospace Science and Industry Corporation, the China Shipbuilding Group, etc. From 2020 to the first half of 2023, the total sales amount of Ke Kai Electronics to the top five customers accounted for 99.55%, 99.52%, 99.63%, and 99.16% of the main business income, all exceeding 99%. Among them, from 2020 to 2022, the company's sales amount to the first major customer, a subsidiary of the China North Industries Group Corporation, accounted for 64.42%, 60.95%, and 51.66%, all exceeding 50%. Among them, the company's sales amount to a certain unit of the China North Industries Group Corporation accounted for 59.71%, 49.01%, and 39.24%.
From the data, it is obvious that Ke Kai Electronics has a significant heavy dependence on major customers.
In the first half of 2023, the China North Industries Group Corporation retreated to the second-largest customer, and the China Aviation Industry Group was promoted to the first-largest customer. Ke Kai Electronics' sales amount to it accounted for 44.86%, close to 45%. Among them, the sales amount to a certain subsidiary unit accounted for 37.79%, close to 40%.
Such dependence on major customers, if the demand of individual customers changes, will have a huge impact on the sustainability of Ke Kai Electronics' performance.
Based on the above phenomena, Ke Kai Electronics was asked. Its response was that it was due to industrial characteristics.In fact, the risks for Ke Kai Electronics have already become apparent. In 2022 and 2023, the company achieved operating revenues of 272 million yuan and 308 million yuan, respectively, with corresponding net profits of 163 million yuan and 167 million yuan. In 2023, the operating revenue increased by 12.92% year-on-year, while the net profit increased by 2.57%, which are not synchronized.
In the first eight months of this year, the company achieved operating revenues and net profits of 94.24 million yuan and 25.81 million yuan, respectively, accounting for 30.64% and 15.46% of the full year of 2023.
It can be anticipated that this year, Ke Kai Electronics' performance will show a significant decline. In the prospectus, Ke Kai Electronics once stated that starting from the second half of 2023, based on the needs of some customers for cost control, the company negotiated with them and reduced the prices of some models of products.
On September 8, 2022, Ke Kai Electronics underwent its fourth capital increase, with Weifang Ke Tian Venture Investment Partnership (Limited Partnership) increasing its capital by 30 million yuan, corresponding to a valuation of 2.93 billion yuan.
That is to say, before the IPO, Ke Kai Electronics' valuation was close to 3 billion yuan, far higher than the current market value of Silinjie, which is around 1.7 billion yuan.
In the view of market insiders, Silinjie's transaction this time, which involves partial share payment and partial cash payment, and only acquires 71% of the target company's shares, is deliberately avoiding a reverse takeover transaction.
Regardless of the purpose, in the end, whether Silinjie can achieve the expected results remains unknown.
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