Incident: Lianchuang Optoelectronics plans to acquire 8% of Lianchuang's superconducting shares held by Jiangxi Electronics Group Co., Ltd. with 0.357 billion yuan in cash, and plans to acquire 3% shares of Lianchuang Superconductivity held by Gongqingcheng Zinojia in cash.

After the transaction is completed, the company's shareholding ratio in Lianchuang Superconductor will increase from 40% to 51%, becoming the controlling shareholder of Lianchuang Superconductor, and included in the scope of the consolidated statement.

The transaction has been reviewed and approved by the company's board of directors and still needs to be approved by the shareholders' meeting, so there is still uncertainty; since Electronics Group is the controlling shareholder of the company, the transaction between the company and the electronics group constitutes a related transaction.

Lianchuang Superconductivity has industry-leading superconducting magnet technology, and many products have entered the commercialization stage. ① High-temperature superconducting induction heating equipment: In 2023, Lianchuang Superconductivity optimized production processes and processes. The product changed from customized production to standardized production, further reducing costs and further improving energy saving effects. ② High-temperature superconducting magnetocrystalline furnace: It has been commercialized in the field of photovoltaics, and is expected to be the first to be released in 2024. At the same time, the company has completed a preliminary design plan for semiconductor-grade silicon monocrystalline furnace magnets, which is expected to fully benefit from the localized replacement market for semiconductor-grade silicon rod production in the future. ③ Compact high-temperature superconducting magnet system for nuclear fusion: In April 2024, Lianchuang Superconductivity successfully completed the preparation and low temperature testing of D-type high-temperature superconducting magnets based on cluster cables, providing strong support for the independent development of large-port, high-field superconducting magnets for compact nuclear fusion reactors.

According to the “Asset Evaluation Report” disclosed in the announcement, Lianchuang Superconductor is full of orders, and future revenue is expected to grow rapidly. In 2023 and 2024Q1, Lianchuang's superconductivity revenue was 75.398 million yuan and 8.69 million yuan, respectively.

As of August 2024, Lianchuang Superconductor's current order amount was 0.492 billion yuan, the framework agreement order amount was about 1.115 billion yuan, and the intended customer and amount being tracked is estimated to be 81.5 million yuan. Revenue is expected to grow rapidly in the future as on-hand orders are delivered. According to the “Asset Assessment Report” forecast, in 2024-2026, Lianchuang Superconductor's revenue was 0.33, 1.133, and 2.127 billion yuan, respectively, up 340%, 244%, and 88% year-on-year, with gross margins of 27.96%, 35.11%, and 36.67%, respectively, up 10.39pct, 7.15pct, and 1.56pct. In terms of net profit, Lianchuang Superconductor achieved net profit of 6.785 million yuan in 2023, and promised that the cumulative net profit from 2024 to 2026 will not be less than 0.6 billion yuan, with an average net profit of 0.2 billion yuan.

The acquisition has a high premium rate and is a related transaction with the Electronics Group, which still needs to be approved by the shareholders' meeting in the future. Lianchuang Superconductor's net asset book value in 2023 was 0.194 billion yuan, and the net asset book value corresponding to 11% equity was 21.3883 million yuan. The purchase consideration was 0.4906 billion yuan, and the premium rate reached 2193.78%. The reason for the high acquisition price is that the company used the revenue method evaluation results of 80% in the “Asset Evaluation Report”, that is, based on predictions of Lianchuang Superconductor's future revenue and net profit, and used a discount rate of 11.44% to obtain the assessed value of Lianchuang Superconductor's current assessed value of 5.575 billion yuan, 55.75* 80% * 11% = 0.4906 billion yuan.

If Lianchuang Superconductor does not fulfill its performance promises, Electronics Group and Gongqingcheng Zhinuojia will pay compensation, and Mr. Wu Rui, the actual controller of the Electronics Group, will bear joint and several liability. Electronic Group's compensation amount = (net profit commitment - cumulative realized net profit) ÷ net profit commitment × Electronics Group transaction consideration; Gongqingcheng Zinojia's compensation amount = (net profit commitment - cumulative net profit) ÷ net profit commitment × Gongqingcheng Zinojia transaction consideration.

The acquisition is a merger of companies under the same control and does not generate goodwill.

Lianchuang Optoelectronics issued an announcement to change the use of repurchased shares and cancel them. The company plans to cancel the repurchased 1.7113 million shares, accounting for about 0.3759% of the company's current total share capital, and the repurchase unit price is about 29.71 yuan/share. This cancellation is expected to increase the return on investment of the company's shareholders and further boost investor confidence.

Maintain an “overweight” investment rating. The high-temperature superconductivity industry is one of the two main businesses Lianchuang Optoelectronics will focus on in the future. The acquisition of an 11% stake in Lianchuang Superconductivity will help the company accelerate industrial transformation and upgrading. However, Lianchuang Superconductor is still in the early stages of commercialization, and is expected to create greater value for the company in the future. Since Lianchuang Superconductivity's consolidated statement has not yet been determined, we maintain the profit forecast in the previous in-depth report. We expect revenue of 3.512/3.937/4.381 billion yuan, up 8%/12%/11% year on year; net profit to mother is 0.501/0.635/0.729 billion yuan, up 48%/27%/15% year over year, corresponding PE is 24, 19, and 17 times, maintaining an “incremental” investment rating.

Risk warning: The acquisition was unable to obtain approval from the shareholders' meeting; transformation and management risks; the progress of the divestiture of low margin assets fell short of expectations; the high temperature superconducting business fell short of expectations; current profitability of the main business was weak; Lianchuang Superconductivity's accounts receivable and cash flow risks; and Lianchuang Superconductivity's future performance growth fell short of expectations.