Can the effect of 1+1 be greater than 2 be achieved this time?

《Investor Network》 Zhang Jingyi

Recently, Xidi Microelectronics Group Co., Ltd. (hereinafter referred to as: Xidi Micro/company) plans to acquire 100% of the shares of Shenzhen Chengxin Micro Technology Co., Ltd. (hereinafter referred to as: Chengxin Micro/symbol company) by issuing shares and paying cash, and to raise supporting funds.

This will be Xidi Micro's second equity acquisition this year. Considering that the company has not yet achieved profitability since its listing in 2022, the market generally concerns whether this acquisition can become a turning point for the company to turn losses into profits.

The performance of both parties to the trade has declined.

According to the announcement, Xidi Micro will issue shares and pay cash to four trading counterparts, including Cao Jianlin, Cao Songlin, Lian Zhichuangxin, and Huizhi Chuangxin, to acquire 100% of the shares of Chengxin Micro held by them, and issue shares to raise supporting funds from no more than 35 specific investors. In this transaction, 55% of the payment will be made in the form of shares, and the remaining 45% will be paid in cash.

After negotiation, the current round of share issuance price is set at 11 yuan/share, not lower than 80% of the trading average price of the company’s stocks in the 20/60/120 trading days prior to the pricing benchmark date, which complies with the regulations of the "Restructuring Management Measures." The shares received by Cao Jianlin, Cao Songlin, and Lian Zhichuangxin cannot be transferred within 12 months after the issuance, while the shares received by Huizhi Chuangxin cannot be transferred within 36 months. The trading counterpart must also make commitments regarding the future performance of Chengxin Micro and agree to compensation measures if performance commitments are not met. However, due to the incomplete audit and evaluation of Chengxin Micro, the specific price of the transaction and the performance compensation agreement have not been determined yet.

It is understood that Xidi Micro focuses on the research, design, and sales of high-performance analog integrated circuits, with products including power management chips and signal chain chips, mainly serving the consumer electronics and auto electronics markets. Chengxin Micro is also a chip design company, with a product line covering power management chips, electric machine chips, MOSFETs, and battery management chips, demonstrating a high potential for synergy between the two companies in terms of business scope.

In terms of financial performance, Xidiwei suffered losses continuously from 2018 to 2020, until achieving a peak performance in 2021, with a net income of 25.65 million yuan, and successfully going public on the star in January the following year. However, after the listing, the company faced industry downturn pressures, with a net income loss of 15.15 million yuan in 2022, and the loss further expanded to 54.18 million yuan in 2023. In the first three quarters of this year, although Xidiwei's revenue increased by 32.1% year-on-year to 0.345 billion yuan, the attributable net income loss was 0.195 billion yuan, a significant decline of 1311.50% year-on-year.

In contrast, Chengxinwei has maintained profitability in recent years. In 2022, Chengxinwei's revenue was 0.166 billion yuan, with a net income of 4.7356 million yuan; the revenue increased to 0.19 billion yuan in 2023, with a net income of 16.63 million yuan. However, in the first three quarters of 2024, Chengxinwei's performance declined, with a revenue of 0.143 billion yuan and a net income of 5.1793 million yuan, only one-third of last year's total, raising market doubts about whether this acquisition can improve Xidiwei's profitability.

Xidiwei responded by saying, "Chengxinwei's net income for the first three quarters of 2024 was 5.1793 million yuan, which excluded the investment income of 12.207 million yuan from the repurchase of shares held by institutional shareholders. In addition, the company has disclosed the '2024 Annual Quality Improvement and Efficiency Enhancement Return Action Plan' to improve operational conditions."

It is worth mentioning that "Investor Network" found through Qichacha that Chengxinwei's capital increased from 36 million yuan to 38.1313 million yuan on December 28, 2023, and then decreased to 30.2625 million yuan on October 29, 2024. This change in capital occurred shortly after Chengxinwei withdrew from the national equities exchange and quotations and prior to Xidiwei's acquisition announcement. Whether the above capital adjustments affect valuation and compliance remains to be questioned.

In response, Xidiwei stated, "Audit and evaluation work related to this transaction has not yet been completed, and the transaction price has not been determined. For the historical evolution of Chengxinwei and the estimated price evaluation of this transaction, please pay attention to the subsequent announcement disclosures."

Institutional shareholders are reducing their holdings.

In October of this year, Xidiwei announced that institutional shareholder Shenzhen Chenxin, holding 5.04% of the shares, plans to reduce its holdings by no more than 3% starting from November 1.

On the second trading day after the shareholding plan was implemented, Xidiwei began planning an acquisition and therefore suspended trading until November 18. On the same day, Shenzhen Chenxin implemented the shareholding reduction plan, immediately reducing by 0.1512 million shares, which sparked dissatisfaction among investors.

In response, Xidiwei stated to "Investor Network" that "Shenzhen Chenxin is a B-round investor of the company, having invested early and held shares for a long time. Recently, due to its own financial needs, it has reduced a small amount of its shareholding. Shenzhen Chenxin is not the company's controlling shareholder or actual controller, and this will not lead to changes in the company's controlling shareholder and actual controller, nor will it have a significant impact on the company's governance structure and ongoing operation. Before the company disclosed the suspension announcement on November 5, 2024, Shenzhen Chenxin was unaware of the company's plan to issue shares and pay cash to acquire assets, and there is no relevance between Shenzhen Chenxin's shareholding reduction and the company's plan to issue shares and pay cash to acquire assets. The company does not have any insider trading or information leakage situation."

In fact, the company has already gone through a round of acquisitions this year.

In July of this year, HMI, a wholly-owned subsidiary of Xidiwei, announced plans to acquire 30.91% of Zinitix held by the seller for 21 billion KRW (approximately 0.109 billion RMB). By August, this transaction was successfully completed, making HMI the largest shareholder of Zinitix, and Zinitix officially became a subsidiary of Xidiwei.

Both Xidiwei and Zinitix are enterprises in the integrated circuit design field. Through this acquisition, Xidiwei can quickly absorb Zinitix's mature patented technology, R&D resources, and customer resources, thereby accelerating the expansion of its product line, especially in the touch chip sector, which will help the company expand its technology and product layout in the mobile phone and wearable device markets.

However, according to Xidiwei's third-quarter report, although Zinitix has been consolidated into Xidiwei's financial statements, the consolidated financial results show that Xidiwei's losses exceeded those of the previous two quarters, raising market doubts about Xidiwei's acquisition decision.

In response to market doubts about whether this acquisition has met expectations, Xidiwei replied to "Investor Network" saying, "Zinitix was included in the company’s consolidated scope starting at the end of August 2024, thus having a small financial impact on the company’s third-quarter report. The company's losses are mainly due to the sustained increase in R&D investment, with rising costs for R&D-related materials and testing; as the scale of business expands and product lines increase, sales and administrative expenses have also risen. Based on the principle of prudence, the inventory impairment provision recognized in the first three quarters of 2024 has increased. The company will continue to optimize its operational management strategy, fully integrate and leverage both parties' advantages and synergies, striving to achieve extraordinary effectiveness of '1+1>2.'" (Produced by Thinking Finance) ■