“Science and Technology Innovation Board Daily”, April 2 (Reporter Wu Xuguang) On the evening of April 1, Youyan New Materials announced that the company plans to issue 358.331,000 shares of the company to the controlling shareholder China Youyan Technology Group Co., Ltd. (hereinafter referred to as “China Youyan”), raising no more than 320 million yuan to repay special state-funded debts after deducting issuance fees. The offering price is 8.93 yuan/share.

Regarding the purpose of this fixed increase, Youyan Xinshi said that the company's issuance of shares to specific targets will further enhance the company's capital strength, optimize the balance and liability structure, and enhance the company's profitability and resilience to risks, thereby maximizing shareholder value.

Youken New Materials is mainly engaged in research, development, production and sales of electronic films and precious metal materials, rare earth materials, infrared optical and optoelectronic materials, and biomedical materials. The products are mainly used in strategic emerging industries such as next-generation information technology, high-end equipment manufacturing, energy saving and environmental protection, biomedical materials, etc., to meet the needs of national economic development.

In the first three quarters of 2023, due to falling prices and demand for rare earths and platinum group metals, the company's performance declined significantly. According to the 2023 Q3 performance report released by Youyan New Materials, in the first three quarters, the company achieved operating income of 8.320 billion yuan, a year-on-year decrease of 29.1%; realized net profit of 140 million yuan, a year-on-year decrease of 46.31%.

The “Science and Technology Innovation Board Daily” reporter noticed that this is the third consecutive quarter where the company experienced a decline in both revenue and net profit. Previously, in March 2023 and June 2023, the company achieved revenue of 3,025 billion yuan and 5.648 billion yuan, down 22.64% and 23.75% year on year; realized net profit was 38.78 million yuan and 52.86 million yuan, respectively, down 23.75% and 72.07% year on year.

Our own profitability has been drastically weakened, and the debt pressure on research and new materials has increased. At the same time, the size of accounts receivable continues to be high, affecting the company's liquidity.

As of the end of September 2023, Youyan Xincai's total assets were 5.963 billion yuan, with current assets of 4,090 billion yuan, of which accounts receivable reached 843 million yuan and monetary capital of 409 million yuan; in terms of liabilities, as of September 2023, the company had short-term loans of 472 million yuan, non-current liabilities of 184 million yuan, long-term loans of $341 million, bonds payable of 1.64 billion yuan, and other current liabilities of $2,005 billion, far exceeding the size of the company's monetary capital.

Judging from the cash flow statement, in 2022, the net cash flow from UGEN XINC's operating activities was 157 million yuan, and the balance of cash and cash equivalents was only $1,116 million. However, as of the end of September 2023, the net cash flow from UGEN Xincai's operating activities was -450 million yuan, and the balance of cash and cash equivalents fell to 409 million yuan.

In this context, all of the additional capital raised by Youken New Materials will be used to repay debts.

According to Youyan Xincai, as of September 30, 2023, the company's balance ratio was 33.63%. Using the September 30, 2023 data as the calculation basis, assuming that the issuance fee is not taken into account, all the capital raised this time will be used to repay the entrustment loan. After the issuance is completed, the company's consolidated statement balance ratio will drop to 31.48%.

The “Science and Technology Innovation Board Daily” reporter noticed that in addition to raising capital through fixed increases, the company is also improving its financial situation by transferring shares in subsidiaries.

In May of last year, Youyan New Materials issued an announcement on the sale of the holding subsidiary, according to which the company transferred its shares to China Rare Earth Group and China Youyan New Materials Co., Ltd. at a price of about 585 million yuan. This transfer involved about 43.72% of Youyan Rare Earth's shares.

“After this transfer, the company's cash flow is expected to be optimized, and the business will focus on semiconductor materials.” CITIC Securities stated in a research report released in May 2023 that Youyan New Materials transferred its shares in Youyan Rare Earth to China Rare Earth Group and China Youyan, and cooperated to develop specialized integration around the rare earth industry chain, which would help the company to make full use of its unique advantages and promote industrial development.

In recent years, along with the expansion of domestic wafer manufacturers, localized alternatives to target materials as one of the upstream raw materials have developed rapidly. Guojin Securities predicts that in 2024, the share of domestic wafer production capacity in the world will increase from 16% in 2022 to 19%, and the size of the semiconductor materials market will grow steadily.

As early as March 2022, Youyan New Materials issued an announcement stating that it was decided to adjust the initial fund-raising project “Youjianyi Gold Target Production Expansion Project”. The project renovation and construction site included two parts of a new production base in Dezhou, Shandong and the upgrading of the Changping base. The product structure and production process were further optimized and improved, and the production capacity reached 73,000 yuan/year after completion of the project.

Specific adjustments include: the total project investment increased from 328 million yuan to 646 million yuan, the land area increased from 100 mu to 140 mu, the construction area increased from 29,000 square meters to 43,000 square meters, the product structure adjusted some aluminum targets and titanium targets to copper targets. The construction period was extended from 12 months to 18 months, and production will reach production by the end of 2025.

In terms of project progress, according to the Guojin Securities Research Report, as of September 2023, the production line renovation at Youyan New Materials Changping Plant has been completed. Currently, the production capacity is 35,000 yuan/year, and the Dezhou base plans to expand production capacity by 43,000 units. It was officially put into operation in September 2023, and production capacity is gradually climbing.

Regarding the fixed increase plan, business performance, and future production capacity plans, etc., the “Science and Technology Innovation Board Daily” reporter called Youyan New Materials several times. As of press release, no response had been received to the company's related questions.