Elec-Tech International: Plans to Shut Down LED Display Business

On October 20, Anhui Teco Electric Co., Ltd. (hereinafter referred to as "Teco Electric" or the "Company") held the 24th meeting of the 6th Board of Directors on October 16, 2020, and reviewed and approved the "Proposal on Shutting Down the LED Display Business".

According to Daho Runda, the company entered the LED industry in 2009, and its layout for the LED Display business also began that year. In 2010, the company completed the Acquisition of equity in Shenzhen Retop Display Technology Co., Ltd. (hereinafter referred to as "Shenzhen Retop"). In 2013, Guangdong Daho Retop Display Technology Co., Ltd. (hereinafter referred to as "Guangdong Retop") was established, marking the company's formal and comprehensive entry into the LED Display industry.

In the past two years, the market environment for the domestic LED display industry has undergone significant changes. On one hand, the barrier to entry for displays is low, resulting in a large number of enterprises. Large manufacturers leverage their scale advantages to squeeze out smaller ones, which strive to reduce costs by any means necessary to survive, leading to fierce industry competition. On the other hand, the ongoing US-China trade war, compounded by the impact of the COVID-19 pandemic, has led to a surge in uncertainties in the macroeconomic environment since 2020, causing a substantial decline in market demand. Facing the shrinkage of demand and market chaos in the LED display industry, the sector is also under continuous pressure from the channel layout of first-tier brands in the traditional display industry. Although the company's LED display products have a certain level of brand recognition, their market share is not high, and the operational performance of the company's LED display business is less than ideal.

Given that the difficulties in the LED display industry are unlikely to ease in the short term, compounded by adverse factors such as the China-US trade war and the COVID-19 pandemic, the company's LED display business—particularly overseas display sales, which account for a significant proportion—has continued to decline, leading to a very pessimistic industry outlook. On the other hand, the LED display business has sustained losses over the past two years with low contribution to scale, making it incompatible with the company's overall strategic planning and operational performance requirements.

To reduce losses, integrate the listed company's business, optimize the business and asset structure, ensure the subsequent healthy operation of the listed company, and safeguard the legitimate rights and interests of all shareholders, it is proposed to shut down the LED display business based on the operating conditions in 2020.

The equity structure of the companies involved in the LED display business proposed for shutdown is as follows:

As of June 30, 2020, the revenue from the LED display business planned for shutdown accounted for 4.91% and 2.97% of the company's revenue in 2019 and the first half of 2020, respectively; the net profit accounted for -9.75% and 4.32% of the company's net profit in 2019 and the first half of 2020, respectively. Dehao Ruida stated that the shutdown of the LED display business would not have a significant material impact on the company's other production and operational activities. The shutdown of the LED display business falls within the approval authority of the Board of Directors.

Elec-Tech International stated that shutting down the LED display business will incur short-term costs such as employee severance, inventory write-downs, and potential losses from asset disposal. The company will establish a shutdown task force to properly arrange personnel placement, sell or lease relevant assets, and systematically manage receivables and payables with follow-up tracking to ensure a steady shutdown process. In the long term, this move will help reduce overall operational performance pressure, cut operating losses, ensure healthy operations, and facilitate asset integration and the overall advancement of future planning.

Progress on the Sale of Subsidiary Equity

On the same day, D&E also released an announcement on the progress of the sale of equity in its subsidiary.

According to the announcement, in 2019, Elec-Tech International agreed to sell 100% of the equity of its subsidiary Wistron Electrical Appliances (Zhongshan) Manufacturing Co., Ltd. (hereinafter referred to as "Zhongshan Wistron") to Zhongshan Runchang Industrial Development Co., Ltd.

本次股权交易以246,859,342.74元作为交易价格，经双方友好协商确认，其中，所含的小家电业务资产包的价值确认为81,859,342.74元。由于中山威斯达主营公司小家电业务的生产经营，小家电业务为公司主业之一，为了保证公司小家电业务的完整性，中山威斯达的小家电业务资产包仍由上市公司控制和经营，待过渡期结束后（原股权转让协议约定过渡期为一年，即到2020年12月止），小家电业务资产包将由本公司或本公司指定的子公司承接出来独立运营。

The announcement stated that, in view of the production schedule for current orders on hand and actual operational needs, and following amicable negotiations among all parties, the transition period has been extended to December 31, 2021. The payment deadline for the remaining RMB 8.25 million of the equity transfer consideration (within one month after the end of the transition period) will be postponed in accordance with the original agreed terms. This matter is still subject to approval by the company's shareholders' meeting.