“Investor Network” Zhang Wei

Cross-border crossing has now become a way for many listed companies to seek business transformation and enhance profitability. However, border crossings that have nothing to do with the company's main business are also easily subject to regulatory inquiries.

On January 11, the leading manufacturer of wood-based panels, Daya Shengxiang Home Furnishing Co., Ltd. (hereinafter referred to as “Daya Shengxiang”, 000910.SZ) issued an announcement stating that it had received a letter of concern from the Shenzhen Stock Exchange requesting it to explain the rationality, necessity and feasibility of investing in a new aluminum sheet and battery foil project.

According to the announcement, Daya Shengxiang expects to invest about 2.14 billion yuan in this project. As of the end of the third quarter of 2023, Daya Shengxiang's monetary fund balance was 2,495 billion yuan. Whether Daya Shengxiang has sufficient capital to invest in new projects has also attracted market attention.

Proposed projects were inquired

On December 30, 2023, Daya Shengxiang issued the “Notice on Investing in New Aluminum Strip and Battery Foil Projects”. According to the announcement, Daya Shengxiang plans to invest in a new project with an annual output of 120,000 tons of aluminum sheet strips with a thickness of less than 0.5 mm and 40,000 tons of battery foil in Baise City, Guangxi, with a total investment of about 2.14 billion yuan.

According to reports, the project construction period is 20 months. The first phase is a new project with an annual output of 120,000 tons of aluminum strips with a thickness of less than 0.5 mm, which is expected to be completed and put into operation in 2024; the second phase is a new battery foil project with an annual output of 40,000 tons, which is expected to be completed and put into operation in 2025.

Daya Shengxiang believes that the aluminum strip and battery foil industry faces a favorable national policy environment and has broad market development space. It is feasible to invest in a new aluminum strip and battery foil project.

However, Daya Shengxiang's main business has nothing to do with aluminum sheets and battery foils.

Currently, Daya Shengxiang's products include wooden floors, medium and high density boards, bamboo, and stone plastic flooring. According to the 2023 interim report, wooden floors accounted for 68.11% of revenue, medium and high density boards accounted for 21.05% of revenue, bamboo and stone plastic flooring accounted for 9.43% of revenue, and wooden doors and cloakrooms only accounted for 1.41% of revenue.

In response, the Shenzhen Stock Exchange requested Daya Shengxiang to explain “the rationality, necessity, and feasibility of large-scale investments across industries, whether investment decisions are prudent, whether they are conducive to protecting the interests of listed companies and investors, and whether there are situations of speculation and hot spots.”

However, judging from the business background of its controlling shareholder, Daya Shengxiang's cross-border aluminum strip and battery foil project is not entirely like speculating on the concept and garnering hot spots.

According to the announcement, Daya Technology Group Co., Ltd. (hereinafter referred to as “Daya Group”), the controlling shareholder of Daya Shengxiang, has been focusing on the R&D, production and sales of aluminum foil products, including soft wrap foil, capacitor foil, and battery foil. Daya Shengxiang believes that Daya Group does not have its own supporting upstream aluminum strip production line. After the aluminum strip project is put into operation, Daya Group may purchase aluminum strips from listed companies to meet its production needs.

Regarding transactions that may constitute related transactions with the Daya Group, Daya Shengxiang stated that if it is necessary to carry out related transactions, it will strictly follow the principle of marketization, adopt the “sales price = electrolytic aluminum+processing fee” cost addition pricing method currently commonly used in the market, sign relevant agreements in accordance with the law, or adjust Daya Group's business through other fair and reasonable means to resolve competition issues in the industry, and fulfill related transaction review procedures and information disclosure obligations to effectively protect the legitimate rights and interests of the company and its shareholders, especially small and medium-sized shareholders and unrelated shareholders.

According to enterprise research information, Daya Group currently holds 254 million shares of Daya Shengxiang, accounting for 46.44% of the total share capital of Daya Shengxiang, making it the largest shareholder. With the exception of Daya Group, all shareholders of Daya Shengxiang hold less than 3% of their shares.

Is there sufficient capital to operate

Daya Shengxiang mentioned in the announcement that the total investment in this project reached 2.14 billion yuan, while by the end of the third quarter of 2023, Daya Shengxiang's monetary balance was 2,495 billion yuan.

In response, the Shenzhen Stock Exchange requested additional explanations on whether this large investment had an adverse impact on the development of Daya Shengxiang's main business, taking into account the liquidity situation, cash flow situation, and capital turnover situation.

Regarding the source of funding for the project, Daya Shengxiang stated in the announcement that it will be settled through its own funds or self-financing, which will not affect the normal development of the existing main business, and will not have a significant impact on the company's financial situation and operating results in the short term.

However, with the decline in profit sustainability in recent years, it is no wonder that regulators doubt whether it is capable enough to move forward with new projects.

According to financial data, from 2018 to 2022, Daya Shengxiang's revenue was 7.261 billion yuan, 7.298 billion yuan, 7.264 billion yuan, 8.751 billion yuan and 7.363 billion yuan respectively, with net profit of 725 million yuan, 720 million yuan, 626 million yuan, 595 million yuan and 420 million yuan respectively.

As can be seen, Daya Shengxiang's revenue has remained above 7.2 billion yuan in recent years, but net profit for each period has declined year by year. For example, when revenue in 2022 was comparable to 2018, net profit fell by 42.07%, which is a typical “increase in revenue without increase in profit”.

The profitability of Daya Conjuring declined

In the first three quarters of 2023, Daya Shengxiang's revenue and net profit were 4.458 billion yuan and 244 million yuan respectively, down 15.59% and 24.59% year-on-year respectively from the same period in 2022. Huatai Securities believes that due to the transmission of the real estate cycle and the slow pace of consumption recovery, consumer demand performance in the home furnishing industry is generally weak. In this context, the Asian icon is undergoing transformation, and it seems understandable to look for a second growth curve.

Daya Shengxiang said that this investment will achieve the company's industrial layout in the field of battery foil and aluminum processing, bring new profit growth points to the company, promote the two-wheel drive development of listed companies, enhance the overall competitiveness of the market, and provide solid support for the long-term sustainable development of listed companies.

However, Daya Shengxiang did not mention the revenue analysis of the aluminum strip and battery foil project in the announcement. Daya Shengxiang said that after the project is completed and put into operation, it is expected to achieve good economic benefits, which will have a positive impact on the company's future financial situation and operating results.

The Shenzhen Stock Exchange requested that Daya Shengxiang submit the relevant explanatory materials to the management department of listed companies and disclose them to the public before January 19, and also copy them to the dispatching agency. How will Daya Vision respond, and whether its large cross-industry investments will eventually receive regulatory approval, investors will continue to pay attention.

In the secondary market, since 2022, Daya Shengxiang's stock price has fluctuated repeatedly between 7-10 yuan/share. As of the close of trading on January 17, Daya Shengxiang News was 7.99 yuan/share. (Produced by Thinking Finance) ■