《Investor Network》 Zhang Jingyi

Recently, Guangzhou Silinjie Technology Co., Ltd. (stock code: 688115, hereinafter referred to as: Silinjie/company) announced plans to purchase 71% of the shares of Qingdao Kekai Electronics Research Institute Co., Ltd. (hereinafter referred to as: Kekai Electronics/symbol) from 23 trading partners including Wang Jianhui, Wang Jiangang, Wang Xin, and Wang Ke through the issuance of shares and payment of cash, and intends to raise supporting funds from up to 35 specific investors.

Since its listing in 2022, Silinjie's performance has been unsatisfactory. Kekai Electronics had plans to go public on the GEM, but after two inquiries, it withdrew its listing application in April 2024. Currently, market investors are closely watching whether this acquisition can be a win-win situation for both parties and bring a turnaround in performance for Silinjie.

Does this not constitute a restructuring listing?

According to the disclosed plan of Silinjie, this transaction is expected to constitute a major asset restructuring but not a restructuring listing.

According to relevant rules, when a listed company or its controlling subsidiary purchases or sells assets and meets any of the following criteria, it constitutes a major asset restructuring:

1. The total amount of assets purchased or sold accounts for more than 50% of the total assets at the end of the most recent audited consolidated financial statements of the listed company;

2. The operating income generated by the assets purchased or sold in the most recent accounting year accounts for more than 50% of the operating income in the same period of the audited consolidated financial statements of the listed company, and exceeds RMB 50 million.

The net amount of assets purchased or sold accounts for more than 50% of the audited consolidated net assets at the end of the most recent accounting year of the listed company and exceeds 50 million yuan.

In terms of data comparison, as of the end of 2023, Kecai Electronics' total assets were 1.052 billion yuan, with net assets of 0.901 billion yuan; while Silinjie's total assets were 1.442 billion yuan, with net assets of 1.288 billion yuan. Kecai Electronics' total assets and net assets account for approximately 73% and 70% of Silinjie respectively.

Although Silinjie pointed out that Kecai Electronics' financial data has not yet been audited, and the audit work related to this transaction is not yet completed, the final audit results may differ significantly from the data disclosed in the proposal. However, based on the currently unaudited financial data, Silinjie's acquisition of Kecai Electronics has already met the conditions for a major asset restructuring.

In addition, market analysts have pointed out that in this transaction, Silinjie used partial share payments, partial cash payments, and only acquired 71% of the target company's shares to avoid triggering a backdoor listing.

Performance Decline After Listing

Silinjie is a provider focused on testing measurement technology and solutions, with core business covering the design, development, production, and sales of industrial automation testing products such as embedded intelligent instrument modules. It is understood that Silinjie's main customer base is concentrated in the consumer electronics sector, including global well-known brands such as Apple, Amphenol, Facebook, Tokyo Electron, and SolarEdge.

On March 14, 2022, Silinjie successfully listed on the Shanghai Stock Exchange's Sci-Tech Innovation Board. The company's issue price was 65.65 yuan per share, with the original planned fundraising of 0.557 billion yuan, but the actual net proceeds reached 0.975 billion yuan, exceeding the original plan by 0.418 billion yuan.

However, on the first day of listing, Silinjie's stock price fell below the issue price. The company's issue price was 65.65 yuan per share, the opening price was 54.96 yuan per share, down 16.28% from the issue price, and the closing price was 50.11 yuan per share, a decrease of 23.67%.

After going public, Silinjie's business performance declined.

In the years 2020 and 2021 before going public, Silinjie's revenue was 0.189 billion yuan and 2.22 billion yuan, with year-on-year growth rates of 59.11% and 17.78%, respectively; net income was 0.063 billion yuan and 0.66 billion yuan, with year-on-year growth rates of 112.36% and 5.10%.

In 2022 and 2023, the company's revenue was 0.242 billion yuan and 1.68 billion yuan, with changes of 9.01% and -30.55% year-on-year; net income was 0.054 billion yuan and 0.09 billion yuan, with decreases of 18.18% and 83.37% year-on-year.

However, in the first half of this year, Silinjie's revenue was approximately 76.3799 million yuan, an 11.7% year-on-year increase; the net profit attributable to shareholders of the listed company was about 8.027 million yuan, turning losses into gains year-on-year.

Looking to improve performance through mergers and acquisitions?

Perhaps due to recent poor performance, Silinjie is seeking mergers and acquisitions for a breakthrough. However, is the target company Kekai Electronics a premium acquisition asset?

Data shows that Kekai Electronics was established in July 1997, focusing on the research and development, production, and sales of high-reliable microcircuit modules. Its product line includes electric motor drivers, light source drivers, signal controllers, and other microcircuit products. Kekai Electronics' shares are mainly controlled by the Wang family, including Wang Jianhui and Wang Jiangang, with a total shareholding of 81.51%.

In June 2023, Kekai Electronics submitted an application to the Shenzhen Stock Exchange to go public, planning to list on the Growth Enterprise Market (GEM) and raise approximately 1 billion yuan for the expansion of microcircuit module production capacity, smart upgrades, and integrated circuit research and industrialization projects. However, after two rounds of inquiries and updates to the prospectus, Kekai Electronics withdrew its IPO application on April 15, 2024, terminating the IPO process without disclosing specific reasons.

From the perspective of customer composition, Silinger primarily serves the consumer electronics industry, while Kekai Electronics' customers mainly come from the military industry, with no overlap in their customer base.

Nevertheless, Silinger believes that through this acquisition, the company can quickly enter the military industry, expand downstream application industries and customer base, reduce dependence on the consumer electronics industry. At the same time, Kekai Electronics can also leverage Silinger's accumulated market channels and customer resources in the consumer electronics sector to accelerate the expansion of the civilian market and achieve synergies in market development.

Military enterprises usually face the issue of high customer concentration, and Kekai Electronics is no exception, with its main customers including China Aviation Industry Corporation, China Aerospace Science and Industry Corporation, China CSSC, and other large central enterprises. From 2020 to the first half of 2023, Kekai Electronics' sales to the top five customers accounted for 99.55%, 99.52%, 99.63%, and 99.16% of the total operating income respectively, all exceeding 99%, demonstrating extremely high customer dependency.

Relying on large customers poses various risks to the enterprise, including market risks and financial pressures. In terms of financial performance, Kekai Electronics achieved operating revenues of 0.272 billion yuan and 3.08 billion yuan in 2022 and 2023, with net incomes of 0.163 billion yuan and 1.67 billion yuan respectively. In the first eight months of this year, Kekai Electronics' operating revenue and net income were 94.2408 million yuan and 25.81 million yuan respectively, accounting for 30.64% and 15.46% of the total for 2023, indicating a significant decline in performance.

Nevertheless, Kekai Electronics' overall performance in recent years has still been significantly better than Silinger. Therefore, there is a common market speculation that Silinger may hope to rapidly improve its performance through this acquisition.

As the audit, evaluation, and other related work for this transaction have not been fully completed, the assessment value of the target assets and the transaction price have not been determined, and "Investor Network" will continue to follow the progress of this merger and acquisition restructuring. (Produced by Think Finance) ■