“Investor Network” Zhang Wei
Can the interests of listed companies and small to medium shareholders be fully protected by simply relying on the parties to the transaction to negotiate prices against the target company without evaluation by a professional agency? Recently, a merger and acquisition case involving an A-share listed company attracted attention.
In January, the science and technology innovation board company Puyuan Precision Electronics (688337.SH) issued an announcement stating that it had received an inquiry letter from the Shanghai Stock Exchange requesting it to respond to issues such as transaction plans, valuation pricing, integrated control, and business collaboration to acquire shares in Beijing Naishu Electronics Co., Ltd. (hereinafter referred to as “Nishi Electronics”).
The Shanghai Stock Exchange requires Puyuan Precision to disclose the content of the response within 10 trading days after receiving the inquiry letter. Investors will continue to pay attention to how Puyuan Precision Electronics will respond and whether the deal can be approved in the end.
Proposed mergers and acquisitions, transformation and upgrading of peers
Judging from the business scope of the two companies, Puyuan Precision Electric's merger and acquisition of Endurance Electronics has a certain business synergy effect.
According to public information, Puyuan Precision Electronics was founded in 2009. The company specializes in R&D, production and sales of general electronic measuring instruments. Its products include digital oscilloscopes, radio frequency instruments, waveform generators, multimeters, and data collectors.
In March 2022, Puyuan Precision stated in its prospectus (registration draft) that as the only Chinese company currently equipped with self-developed digital oscilloscope core chipsets and successfully industrialized its products, the company's products have gradually achieved diversified industry coverage in time and frequency domain test and measurement applications, providing test and measurement guarantees for industrial production, communications, aerospace, consumer electronics and other industries.
According to the revenue composition of the 2022 report, sales revenue from electronic testing and measuring instruments accounts for 89% of Puyuan Precision's main revenue, while other revenue accounts for only 11% of revenue.
Resilient Electronics was founded by Wu Qiongzhi, a teacher at Beijing Institute of Technology, and others. The company focuses on the development and application of digital array systems. Its products include intelligent digital array products, digital antenna platforms and components, quantum measurement and control systems, and modular array platforms. It mainly provides array application systems and measurement system solutions for users in remote sensing, quantum information, radio astronomy, microwave communication and other industries.
Puyuan Precision Electronics believes that the company's capital strength and management level have all been enhanced and improved after listing. Epitaxial development can give full play to the company's capital advantages and is the preferred solution to grow bigger and stronger at this stage; Endurance Electronics has a deep technical accumulation in digital arrays, and integrating Endurance Electronics will help the company achieve transformation and upgrading from an electronic measuring instrument supplier to a comprehensive solution provider.
The target company's premium is nearly 10 times
As can be seen from the previous description, Endurance Electronics is a “good helper” that can help Puyuan Precision achieve industrial upgrading. However, in order to get this good standard, Puyuan Precision also has to pay a lot of transaction price.
According to the plan, Puyuan Precision plans to acquire 32.26% of the shares of NISU Electronics for 120 million yuan, and Wu Qiongzhi, the shareholder of NISU Electronics, entrusts 18.88% of voting rights to Puyuan Precision. Puyuan Jingdian assigned a director and financial director to Naishu Electronics and became its controlling shareholder.
In addition, according to the announcement, Puyuan Precision Electric plans to purchase the remaining 67.74% shares of Endurance Electronics from 7 counterparties including Wu Qiongzhi by issuing shares. Eventually, Nishu Electronics became a wholly-owned subsidiary of Puyuan Precision and made a financial merger with Puyuan Precision.
According to company research information, NISU Electronics was founded in 2012. Currently, there are 7 natural person shareholders, including Wu Qiongzhi, Sun Lin, Sun Ningxiao, Jin Zhaojian, Xu Jialin, Liu Jie, and Xing Tonghe. In total, the 7 people hold 100% of the shares in Endurance Electronics.
There are two major issues that attracted attention in this transaction.
First, the valuation of Endurance Electronics has not been finalized. “After friendly negotiations between the parties, the parties agreed and confirmed that the overall valuation of Endurance Electronics is about 372 million yuan.” Puyuan Precision Electronics stated that if the difference ratio between the assessed value issued by the evaluation agency hired later and the agreed transfer consideration does not exceed ± 5%, the transfer consideration will not be adjusted; if the difference ratio between the two above exceeds ± 5% of the transfer consideration, the parties shall separately negotiate the adjustment method in a friendly manner.
Second, the premium for durable electronics is close to 10 times. According to financial data, as of the end of 2023, the owners' equity of Naishu Electronics was about 34 million yuan, which means that the valuation of 372 million yuan negotiated by the parties to the transaction is 10.94 times the current net assets of NES Electronics, and the value-added rate of NES Electronics is close to 1000%.
In response, the Shanghai Stock Exchange requested Puyuan Precision to explain “whether the specific basis and rationality of negotiations between the parties to the transaction against the target company fully protects the interests of the listed company and small and medium shareholders; if triggering a transfer consideration adjustment, it will affect the certainty of the transaction and the acquisition of the remaining shares.”
Performance increased but stock prices fell
Frost & Sullivan, a world-renowned consulting agency, said in its research report that the modern electronics industry needs electronic measuring instruments to assist in everything from raw material selection and production process monitoring to product testing and equipment operation, and the electronic measuring instrument industry has broad prospects for development.
Frost & Sullivan predicts that from 2022 to 2025, the compound annual growth rate of the electronic measuring instrument industry will reach 5.74%. The global market size will increase from US$14.581 billion to US$17.238 billion during this period, with widespread demand for downstream applications. In this context, when combined with advantages such as the company's listing, Puyuan Precision's performance is improving year by year.
According to the annual report, from 2020 to 2022, Puyuan Precision's revenue was 354 million yuan, 484 million yuan and 631 million yuan respectively, and net profit to mother was -27.18 million yuan, -3.9 million yuan and 92.49 million yuan, respectively. In particular, in 2022, Puyuan Precision's revenue increased year-on-year, and the loss situation of the previous two years was reversed in one fell swoop.
In the first three quarters of 2023, Puyuan Precision's revenue and net profit were 473 million yuan and 68.06 million yuan, up 14% and 36%, respectively.
Shenwan Hongyuan Securities believes that if Puyuan Precision Electronics can acquire Endurance Electronics, it will complement specific industries such as remote sensing detection, quantum information, radio astronomy, microwave communication, etc., and help add high-quality downstream customer groups such as research institutes, thus helping to introduce the company's other high-end products into remote sensing and other industries.
China Investment Securities, on the other hand, believes that as one of the “stuck neck” technologies, electronic measuring instruments have considerable room for domestic replacement, and they are optimistic that Puyuan Precision will maintain medium- to high-speed development over a long period of time in the future against the backdrop of the accelerated release of industry dividends and with a rich product pipeline.
SDIC Securities also mentioned that since the acquisition needs to meet many conditions before it can be completed, there is still uncertainty. Puyuan Precision's revenue from 2023 to 2025 is estimated to be 771 million yuan, 1,036 million yuan, and 1,348 billion yuan, and net profit to mother will be 146 million yuan, 220 million yuan, and 302 million yuan respectively, maintaining the investment rating of -A. The target price for 6 months is 59.5 yuan/share, which is equivalent to 50 times PE in 2024.
Although brokerage firms are optimistic about its development, Duopuyuan Precision's stock price over the past year has not been strong.
According to Wind information, the issue price of Puyuan Jingdian when it was listed in April 2022 was 60.88 yuan/share. After rising to 81.2 yuan/share in October 2022, Puyuan Precision's stock price fell all the way down. By the close of trading on January 23, Puyuan Jingdian News was 36.14 yuan/share, down more than 55% from its all-time high (81.2 yuan/share).
It remains to be seen whether the current acquisition of Nishu Electronics will improve Puyuan Precision's performance, thereby boosting its stock price in the future. (Produced by Thinking Finance) ■