On July 2, Zongshen Power announced that Zongshen Power's shareholding company Zongshen Xinzhi Manufacturing (Zongshen Investment Co., Ltd. holds 51.71% of Zongshen Investment Co., Ltd., 48.29% of Zongshen Power's shares) plans to invest 3.346 billion yuan to acquire 504,172,175 shares of Longxin GM's total share capital, accounting for 24.5513% of Longxin GM's total share capital, corresponding to 6.6366 yuan per share.

On July 1, 2024, the company participated in Zongshen New Intelligent Manufacturing and Longxin Group Co., Ltd., Longxin Holdings Co., Ltd., Chongqing Lianen Industrial Co., Ltd., Chongqing Yuhan Real Estate Development Co., Ltd., Chongqing Yushang Industrial Investment Co., Ltd., Chongqing Yingchuan Industrial Co., Ltd., Chongqing Longxin Mining Investment Co., Ltd., Chongqing Yushang Renewable Resources Development Co., Ltd., Chongqing Changjiang Financial Holdings Group Co., Ltd., Weinan Hongjing Trading Co., Ltd., Chongqing Longheng Hotel Co., Ltd. (abbreviated as “13 Longxin companies) The bankruptcy and restructuring manager (“Company”) (“Longxin's Thirteen Enterprise Managers” or “Managers” for short) signed a “Reorganization Investment Agreement” to participate in the substantive merger and restructuring of 13 Longxin enterprises. Zongshen Xinzhizao plans to invest 3.346 billion yuan to acquire 504,172,175 shares of Longxin GM held by Longxin Holdings Co., Ltd. (“Longxin Holdings”), accounting for 24.5513% of Longxin GM's total share capital.

After the transaction is completed, according to the “Reorganization Investment Agreement”, Zongshen Xinzhizao will acquire 504,172,175 shares of Longxin GM. Zongshen Zongshen will become the largest shareholder of Longxin GM. As the shareholder of Loncin GM Holdings, Mr. Zuo Zongshen, the actual controller of the company, will become the actual controller of Longxin GM.

After the acquisition is completed, Zongshen Power holds 11.86% of Longxin GM's shares. Longxin GM achieved a profit of 0.258 billion in the first quarter of '24, and is expected to make a profit of 1.1-1.2 billion yuan for the whole year (see Wind's consistent forecast). After the equity settlement is completed, it is expected to increase Zongshen Power's profit by about 0.05 billion yuan.

Longxin GM is mainly engaged in the motorcycle and general machinery business. The products have good market competitiveness, and there is an industrial chain synergy with Zongshen Power's existing motorcycle engine and general machinery businesses. This transaction will help optimize the industrial ecology and improve the company's industrial layout.

After the transaction is completed, part of Loncin GM's business will compete with the company in the same industry.

Investment advice: This acquisition will have a long-term positive impact on the company's business. It will optimize the industrial ecology and form a collaboration with the company's original business. At the same time, the company's aero-piston engines are expected to benefit from the low-altitude economy, and the basic market business is also recovering in a cyclical state, maintaining a “highly recommended” investment rating!

Risk warning: New businesses such as general aviation have fallen short of expectations, GM's support ratio for major overseas customers has fallen short of expectations, and demand in the motorcycle market has declined.