Incident: On September 14, Lixun Precision announced the “Notice Concerning the Acquisition of Shares in Leoni AG and its Wholly-owned Subsidiaries”. The company plans to acquire 50.1% of Leoni AG (Leoni AG) shares and 100% of the shares of Leoni Kabel GmbH (LeoniK), a wholly-owned subsidiary of Leoni AG, through this equity transaction. Hong Kong Lixun, a wholly-owned subsidiary of Lixun Precision, and the holding subsidiary Huiju Technology jointly established Singapore Huiju. Singapore Huiju will acquire 100% of Leonik's shares in a transaction consideration of 0.32 billion euros. The company's wholly-owned subsidiary, Singapore Lixun, will acquire 50.1% of LeoniAG's shares held by L2-Beteiligungs at a transaction price of 0.205 billion euros, and the remaining 49.9% of LeoniAG's shares will continue to be held by L2-Beteiligungs.

The acquisition of a German automotive cable giant is in line with the long-term development strategy of the automotive sector. The company's acquisition target company, Leoni AG, is a global supplier of wire, cable and wiring system solutions, covering various industries such as automobile manufacturing, communications, and medical equipment. Leoni AG has two core businesses, namely Automotive Cable Solutions Division (ACS Business or “Automotive Cable Division”) and Wiring System Division (WSD Business or “Wiring Harness Systems Division”). Among them, the main operating entity of the ACS business is Leoni K, and the main operator of the WSD business is Leoni BordnetzeSystem (Leoni B), another wholly-owned subsidiary of Leoni AG. Prior to this transaction, Leoni B owned 4 wholly-owned subsidiaries Leonische Holding, Inc., Leoni Cable, Inc., Leoni Cables.a.de C.V., and Leoni Cable de Chihuahua S.A., which operate the ACS business. To ensure the smooth running of this transaction, L2-Beteiligungs GmbH, the sole shareholder of Leoni AG, will promote the shares of the above 4 companies The asset restructuring of the subsidiary was completed according to the business segment before the delivery date. According to the announcement, LeoniAG's unaudited revenue for 2023 and 1Q2024 was EUR 5462.4124/1290.5747 million, net profit - EUR 128.093/1.6437 million, respectively, and net assets of EUR 718.6656/714.0457 million, respectively. LeoniK's unaudited revenue for 2023 and 1Q2024 was €1464.0508/362.9915 million, net profit of €13.2818/6.5793 million, and net assets of €390.3703/377.488 million, respectively. With this acquisition, the company is expected to empower its global layout by integrating the acquired company's supply chain, market and other resources accumulated over many years of overseas operations, and further enhance the competitiveness and localization of the company's overseas business. Furthermore, although the short-term profitability of the acquired company is weak, we believe that after the company gains management control of the acquired company, it is expected that through collaborative development with its own business, it is possible to continue to improve the profit situation of the acquired company and save momentum for the overall development of the group.

Investment advice

The company acquired an established German automobile cable giant and actively carried out the restructuring and transformation of the acquired company, showing the strategic layout of the company's global layout in the automotive sector. We expect the company to achieve net profit of 14.348, 18.108, and 20.204 billion yuan in 2024-26, corresponding to PE 22.39, 17.74, and 15.90x, maintaining the company's “buy” rating.

Risk warning: downstream demand falls short of expectations; industry competition increases risk; new business development falls short of expected risk