“Science and Technology Innovation Board Daily”, April 18 (Reporter Wu Xuguang) Polytech Navigation's plan to acquire 50.6% of Yuxun Electronics' shares has made new progress. On April 17, the company submitted responses to the first round of audit inquiries to the Shanghai Stock Exchange.

In the first round of responses, Polytechnic Navigation explained key issues such as the target company's business and synergy, the target company's operating performance and performance commitments, the target company's evaluation, the target company's accounts receivable, the target company's transactions, confirmation and measurement of goodwill, and transition period profit and loss.

The acquisition premium was 349.08% and the underlying company's performance was unstable

According to the announcement, as of November 30, 2023, the target company Yuxun Electronics had a book value of 467.622 million yuan of owners' equity attributable to the parent company, but the evaluation results using the revenue method reached 210.00 million yuan, with an estimated value-added value of 163.2378 million yuan, and a value-added rate of 349.08%.

Regarding the premium acquisition mentioned above, a staff member of the Science and Technology Navigation Securities Department told the “Science and Technology Innovation Board Daily” reporter that the target company is mainly located in the military market and does not involve civilian use. Its products are mainly used in the satellite field, and complement Polytech Navigation's core technology.

In response, the Shanghai Stock Exchange requested Polytechnic Navigation to explain whether the valuation of the target company is reasonable and fair based on comparable transaction cases and the situation of comparable listed companies.

In response to the first round of inquiries, Polytech Navigation stated that, based on the actual operating conditions of the target company and future market expectations, according to the earnings method evaluation results, the pre-investment valuation of the confirmed target company was 200 million yuan. Compared with net profit from January to November 2023 and net assets at the end of November 2023, the price-earnings ratio was 15.83 times, and the net price-earnings ratio was 4.28 times.

In the military electronics industry selected by Science and Technology Navigation, the six listed companies, including Guobo Electronics, Holevo, Guoguang, Xinjingang, Thunderbolt Weili, and Galaxy Co., Ltd., as of November 30, 2023, the corresponding price-earnings ratios of the aforementioned military electronics companies were 64.06 times, 73.00 times, 62.40 times, 41.78 times, 38.62 times, and 20.86 times, respectively, 15.83 times higher than the target company.

The “Science and Technology Innovation Board Daily” reporter combed through and found that among the comparable military electronics companies selected by Science and Technology Navigation, up to now, the stock prices of Guobo Electronics, Holevo, and Thunderbolt Weili were in a broken state after the previous restoration of power.

Bai Wenxi, vice chairman of the China Enterprise Capital Alliance, said that the breakout meant that the secondary market was not optimistic about the company, and it is also possible that the previous issuance price was too high. On the other hand, Polytech Navigation plans to acquire Yuxun Electronics, corresponding to a price-earnings ratio of 15.83 times. The valuation is relatively cautious, but whether this means that the intrinsic value of the target company has been recognized by the market remains to be seen.

In terms of performance, overall, Yuxun Electronics' revenue and net profit growth in recent years has been unstable.

According to financial data, from 2021 to the end of November 2023, Yuxun Electronics achieved operating income of 684.751 million yuan, 53.633,200 yuan, and 77.70682 million yuan, respectively; realized net profit was 13.3776 million yuan, 8.6459 million yuan and 126.34 million yuan, respectively.

In response, financial analyst Cao Xing told the “Science and Technology Innovation Board Daily” reporter that the overall performance of the target company, Yuxun Electronics, showed a “U-shaped” trend and may not necessarily remain stable in the long run.

Regarding the company's performance, the Shanghai Stock Exchange requested Polytech Navigation to explain whether Yuxun Electronics' business revenue is sustainable and whether there is a risk of significant revenue fluctuations based on the order delivery cycle of major customers during the reporting period, the order situation at the end of the period, and the expected delivery cycle.

“The risk of significant fluctuations in the target company's revenue.” Polytech Navigation gave an affirmative response in response to the inquiry. It stated that as of March 2024, Yuxun Electronics had an order amount of 84.491 million yuan, with an order amount of 485.633 million yuan without a formal contract signing. If in the future, due to the lengthy approval process for downstream customers, the target company is unable to complete the production and delivery of materials as planned, the product demand of downstream customers, or industry fluctuations, etc., there is a risk that the target company's revenue will fluctuate greatly.

Regarding the current status and prospects of the industry in which Yuxun Electronics is located, some analysts told the “Science and Technology Innovation Board Daily” reporter that the target company is in the microwave component and module product segment product fields. Currently, market demand is better for data links, air traffic control equipment, and weather radar, etc., and it also depends on whether the target company's related product development and delivery progress meets expectations.

The business is highly dependent on China Electronics Technology Group's high accounts receivable

It should be pointed out that Yuxun Electronics is also highly dependent on specific customers and specific products, which also has certain risks.

In 2022 and January to November 2023, the sales revenue of the top five customers of Yuxun Electronics accounted for 97.52% and 95.31% of revenue, respectively. The customer concentration was high. Among them, the largest customer, China Electronics Technology Group Co., Ltd. accounted for 64.54% and 81.23% respectively.

In addition, during the reporting period, Yuxun Electronics' revenue mainly came from RF microwave components, including transmitting components, receiving components, transceiver components, etc. The revenue share for 2022 and January to November 2023 was 86.53% and 91.04%, respectively, which is relatively high.

In the first round of responses, Polytech Navigation stated that the target company is dependent on the largest customer and is dependent on RF microwave module products. If future relationships with existing partner customers change adversely or downstream customer demand changes, and the target company's technology iterations fall short of expectations, products are replaced, or downstream customer procurement demand for RF microwave components decreases, it will lead to a sharp decline in the target company's future performance.

The business dependency on the largest customer has also led to high accounts receivable from the target company.

As of the end of November 2023, the balance of accounts receivable of Yuxun Electronics was RMB 80.3798 million and the balance of notes receivable was RMB 9.3068 million, accounting for a total of 115.77% of current revenue. Among them, the balance of accounts receivable from China Electronics Technology Group customers at the end of period 1 was 65.706 million yuan.

To this end, the Shanghai Stock Exchange requested the company to disclose the post-term repayment status of the Japanese standard asset receivables as of the reply, and whether the top five major customers were overdue, etc.

Polytechnic Navigation replied that the accounts receivable of the target company accounted for 95.72% and 94.42% of accounts receivable balances, respectively, with notes receivable and accounts receivable balances of at least 1 year old accounting for 4.28% and 5.58% respectively. Although the target company's downstream customers are mainly military groups with good credit conditions, there is still a risk that accounts receivable will not be collected for a long time.

At the same time, Science and Technology Navigation also stated that the target company's dependence on the largest customer is a common situation in the military industry.

It should be pointed out that due to high customer concentration, the 2023 performance forecast currently released by Science and Technology Navigation shows that it is expected to achieve operating income of 20.00 million yuan to 230.00 million yuan in 2023, a year-on-year decrease of 88.76% to 90.23%; the company expects to achieve net profit of 240.76 million yuan to -16.076 million yuan, a year-on-year decrease of 128.69% to 143.02%.

An institutional analyst told the “Science and Technology Innovation Board Daily” reporter that the military industry is clearly cyclical, and equipment procurement has now entered the mid-term adjustment stage. “For some smaller military companies, the characteristics of the 'tight' order cycle are obvious. There are orders, and performance takes off; the opposite is a sharp drop, and performance stability is relatively poor.”

In response to situations such as whether military procurement is slowing down and how it is affecting target companies, etc., the “Science and Technology Innovation Board Daily” reporter called the Science and Technology Navigation Securities Department. Its staff did not respond positively; they only stated that “it is not convenient to respond to relevant content for the time being.”