Trading target accounts for more than 80% of the target customers. Can Shanshan shares, whose net profit was cut back in the first half of the year, be reversed by restructuring?

Recently, Ningbo Shanshan Co., Ltd. (hereinafter referred to as Shanshan Co., Ltd., 600884. SH) held the second extraordinary general meeting of shareholders in 2020, which deliberated and passed the “major asset restructuring plan”. According to the report issued by the company, the major asset purchase (Draft) is called LG LCD polarizing business and related assets in mainland China, Chinese mainland Taiwan and Korea. < p > < p > according to the framework agreement signed by Shanshan and LG Chemical and its subsidiaries, China lejin investment and Nanjing lejin, LG Chemical will establish a holding company (hereinafter referred to as the holding company) in cash in China. Shanshan shares will obtain 70% of the equity of the shareholding company by means of capital increase, and LG Chemical holds the remaining 30% equity. The paid in capital of both parties is used to purchase the transaction object after integration. The benchmark purchase price of the underlying assets is US $1.1 billion, and the benchmark purchase price of this transaction is US $770 million; the transaction payment methods are the self owned funds of Shanshan shares, the funds raised through non-public issuance of shares, and self raised funds. < p > < p > it is worth noting that in the first half of this year, Cunninghamia lanceolata Co., Ltd. recorded 3.210 billion yuan, a year-on-year decrease of 27.71%; the net profit attributable to the parent company reached 100 million yuan, a year-on-year decrease of 54.30%. Among them, lithium battery materials business contributed 32 million yuan of net profit, a year-on-year decrease of 82.44%. < / P > < p > according to the reference consolidated financial statements, as of March 31, 2020, the total assets (preparation) of Shanshan Stock Co., Ltd. was 34.997 billion yuan, with a change rate of 43.56%; the total liabilities (preparation) was 22.124 billion yuan, with a change rate of 92.31%; the asset liability ratio (preparation) was 63.22%, 16% higher than that before the transaction; the long-term loan was 1.901 billion yuan, an increase of 3.1% compared with that before the transaction 100 million yuan. Analysts believe that the addition of polarizer business and layout of flat panel display field may bring sustainable operation capability to Shanshan and reduce the impact of market fluctuation of lithium battery materials on the company’s performance. However, the “double layout” not only increases income and profits, but also brings great debt repayment and capital pressure to Shanshan shares. < / P > < p > polarizer is the upstream raw material of liquid crystal panel, which plays an important role in the display effect of liquid crystal panel. In recent years, with the growth of LCD TV, computer, mobile phone and other terminal markets, as well as the development of wearable products and smart home, the market scale of polarizer industry has been close to 10 billion US dollars. According to the size of the global market, it will reach 9.7 billion US dollars.

according to public information, the assets of the Shanshan stock exchange are LG polarizing business and related assets of LG chemical in mainland China, Taiwan, China and Korea, including: 100% equity of Beijing, LCD of Polaroid, LCD of Lek, LCD of China, Taiwan Polaroid LCD polarizing film business, and Korean LCD plant polarizer assets. And LCD polarizer business related intellectual property rights. < / P > < p > because the production of the underlying asset is limited by the speed of the front-end production line equipment, and the underlying asset is the market leader in the field of ultra wide (more than 1960 mm) polarizers. As of March 31, 2020, the underlying assets of this transaction have 8 LCD polarizer front-end production lines per month, and the target assets front-end production lines are%. < / P > < p > from the above data, the capacity utilization rate of the front-end production line of the underlying asset shows a downward trend, which can be compared with that in 2019, which is 12% lower than that of the previous year. In the purchase report, it was explained that the capacity utilization rate of the underlying assets continued to decline, mainly due to LG Group’s strategic abandonment of the market share of some small wide polarizers in order to adjust the industrial structure and optimize the profit structure, shut down the South Korean production line for sale, and put the Guangzhou lejin production line into operation. Some production lines of the underlying assets were not fully started, which also caused the capacity utilization rate influence. < / P > < p > it is worth noting that the two production lines of Guangzhou lejin were put into production in the second half of last year and at the end of March this year, while the two 2300mm production lines of wucang factory in South Korea have been shut down this year. After the transaction is completed, Shanshan shares plans to move them to Zhangjiagang City, Jiangsu Province, to rebuild and put into production. That is to say, even if the deal is completed, it may take some time for the two production lines to move to Zhangjiagang to release capacity. < p > < p > according to public data, the main business of Shengbo optoelectronics, a subsidiary of sanlipu (002876. SZ) and Shenzhen textile a (000045. SZ), is mainly engaged in the R & D, production and sales of polarizers. < / P > < p > it is worth noting that from 2017 to 2019 and the first half of 2020, sanlipu achieved revenue of 818 million yuan, 883 million yuan, 1451 million yuan and 772 million yuan respectively, and the corresponding gross profit rates of each period were 26.34%, 18.06%, 16.67% and 14.36%, respectively. According to the purchase report, in the first quarter of 2018, 2019 and 2020, the target assets realized revenue of 7.84 billion yuan, 8.854 billion yuan and 2.080 billion yuan respectively, with corresponding gross profit rates of 10.03%, 14.38% and 15.98%. < / P > < p > from the above data, although the gross profit rate of the underlying assets keeps rising, compared with the three profit spectrum, the gross profit rate in 2018 and 2019 is several percentage points behind. < p > < p > according to the annual data, in recent two years, the sales of the top five customers of sanlipu accounted for 54.91% and 54.21%; the sales of Shenzhen textile a were 62.02% and 61.2%. The downstream customers of the underlying assets of the transaction are BOE, LG display, csot, etc. In the first quarter of 2018, 2019 and 2020, the sales of the underlying assets to the top five customers accounted for 85.02%, 82.52% and 85.03% respectively. According to Shanshan Co., Ltd., “high customer concentration” is a common situation in the polarizer industry, so there is no high dependence on a single customer. However, by comparing the data of comparable companies, we can see that the underlying assets are more than 20% higher than Sanli spectrum and Shenzhen textile a, and the proportion of sales over the years exceeds 80%, or the risk of relying on big customers for sales is not excluded. Due to the high technical content and technical barriers, the manufacturing of polarizers needs to integrate precision mechanical, optical and chemical technologies. Researchers of investment Times noted that in 2018, 2019 and the first quarter of 2020, the total “four fees” of the underlying assets were 538 million yuan, 507 million yuan and 143 million yuan respectively, and the proportion of expenses in revenue was 6.86%, 5.66% and 6.87% respectively, of which the R & D expenses were zero. < / P > < p > compared with the three profit spectrum, the total expenses from 2018 to the first half of 2020 are 141 million yuan, 155 million yuan and 75 million yuan, accounting for 15.94%, 10.67% and 9.70% respectively; among them, R & D expenses are 50 million yuan, 54 million yuan and 20 million yuan. The corresponding costs of Shenzhen textile a are 139 million yuan, 187 million yuan and 84 million yuan, accounting for 10.92%, 8.66% and 9.8% of the total; the R & D expenses are 42 million yuan, 53 million yuan and 25 million yuan. The R & D expenses of the two companies basically remained at around 40-50 million yuan in the whole year. < / P > < p > obviously, the cost proportion of the underlying assets is lower than that of the comparable companies, and the cost control ability is better than sanlipu and Shenzhen textile A. However, it is unusual that the R & D expenses continue to be zero. In this regard, the researcher of investment times e-mails the outline of communication to Shanshan shares, but no reply has been received up to the time of publication. < / P > < p > in the purchase report, Shanshan said that the core business of the company is lithium battery materials business. Through this transaction, we can carry out business layout in the field of flat panel display, improve the ability of sustainable operation, and reduce the impact of market fluctuation of lithium battery materials on the company’s performance. < p > < p > according to the financial report data, in the first half of this year, Shanshan stock company recorded 3.210 billion yuan, a year-on-year decrease of 27.71%; the net profit attributable to the parent company recorded 100 million yuan, a year-on-year decrease of 54.30%; after deducting non-profit, the net profit returned to the parent was – 27 million yuan, down 116.83% year-on-year. Among them, lithium battery materials business contributed 32 million yuan of net profit, a year-on-year decrease of 82.44%. < / P > < p > the company explained that the net profit of lithium battery material business decreased significantly, which was mainly due to the weak demand of downstream terminal market and the decline of product price, which led to the decrease of gross profit margin. < p > < p > < p > researchers of investment Times noted that from 2015 to 2019, the year-on-year growth rates of revenue of Cunninghamia lanceolata were 17.58%, 11.09%, 51.07%, 7.05% and – 1.96% respectively; the year-on-year growth rates of net profit attributable to parent company were 90.81%, – 52.24%, 171.42%, 24.46% and – 75.81%, respectively. From the above data, except that the growth rate of revenue and net profit attributable to the parent company increased significantly in 2017, the performance of the remaining four years has soared and fluctuated greatly. < / P > < p > according to the consolidated statement for reference, as of March 31, 2020, the total assets (preparation) of Shanshan Stock Co., Ltd. was 34.997 billion yuan, with a change rate of 43.56%; the total liabilities (preparation) was 22.124 billion yuan, with a change rate of 92.31%; the asset liability ratio (preparation) was 63.22%, 16% higher than that before the transaction; and the accounts payable was 2.928 billion yuan, an increase of 13 The long-term loan was 1.901 billion yuan, an increase of 311 million yuan compared with that before the transaction. It can be seen that at the same time of increasing income and interest, the underlying assets of the transaction may also bring great debt repayment pressure and capital pressure to Shanshan shares. < / P > < p > Disclaimer: the purpose of this article reprinted by china.com finance and economics is to convey more information and does not represent the views and positions of the website. The content of this paper is for reference only and does not constitute investment advice. Investors operate accordingly and bear their own risks. < p > < p > Chinanet is a national key news website under the leadership of the Information Office of the State Council and managed by China foreign language publishing and Distribution Bureau. Through 11 versions in 10 languages, the website releases information 24 hours a day, which is an important window for China to carry out international communication and information exchange.