Big Move! HC SemiTek Plans to Invest 6 Billion in LED Business; Kingsun Optoelectronics Plans 2 Billion Acquisition of Guangzhou Long

HC SemiTek Plans to Invest 6 Billion in LED Business

HC SemiTek (300323) announced on the evening of January 3rd that, regarding the company's LED epitaxy, chip, and industry chain extension project in the Yiwu Industrial Park, it has signed an investment framework agreement with the Zhejiang Yiwu Industrial Park Management Committee, with a total expected investment of approximately 6 billion yuan, a land area of approximately 350 mu, and a plan to reach full production within 5 years after obtaining the construction permit. At the same time, both parties plan to jointly establish an LED industry M&A fund with relevant parties, to be used for HC SemiTek's M&A integration in the LED industry chain. The company's stock will resume trading on January 4th.

According to the agreement, the Yiwu Industrial Park Management Committee agreed to provide HC SemiTek's project implementation company with R&D and industrial development subsidies not exceeding 400 million yuan, interest subsidies on 1.2 billion yuan in loans over 8 years, equivalent to 20% of the project's equipment investment within 5 years.

HC SemiTek stated that the LED epitaxy, chip, and industry chain extension projects mainly focus on building an internationally renowned LED industry base. Through project implementation, it will drive the clustering of upstream, downstream, and supporting enterprises in the LED industry chain, which is conducive to further expanding the company's scale and cost advantages, and enhancing its core competitiveness and industry influence.

The announcement disclosed that Zhejiang Yiwu Industrial Park was approved as a provincial-level industrial park in 2006, and was approved by the Ministry of Industry and Information Technology as a National New Industrialization Industry Demonstration Base in July 2014, with a planned area of 192 square kilometers and an industrial development scope of 91 square kilometers. It has formed advantageous industries characterized by electronic appliances and new textile. Yiwu Industrial Park focuses on building three major industries: electronic information, advanced equipment manufacturing, and new textile, committed to integrating factor resources, coordinating industrial planning and construction, strengthening investment attraction, promoting the clustering of high-tech industries, and striving to build itself into a leading area for high-end manufacturing in Yiwu, a clustering area for high-tech industries, a platform for gathering high-end talents, and a demonstration area for environmental friendliness and ecological civilization.

At the same time, in order to build an internationally renowned LED industry base, drive the upstream, downstream, and supporting industries of the LED industry chain to gather in Yiwu, optimize Yiwu's industrial structure, and enhance industrial levels, the Yiwu Industrial Park Management Committee is willing to actively introduce and promote the construction of HC SemiTek's project.

According to the investor relations record disclosed by the company on December 25, 2015, during the research, relevant personnel of the company stated that in terms of production capacity, the company is the second largest LED chip manufacturer in China and the fourth largest in the world. It plans to reach the top three globally in the next few years through capacity expansion, with a leading industry position. HC SemiTek has been established for 10 years so far, and the management team has always been dominated by technology-oriented experts who are very familiar with the development direction and application prospects of the entire semiconductor industry including LED.

Industry insiders said that the company's LED project this time intends to enter the Yiwu Industrial Park, and jointly initiate the establishment of an LED industry merger and acquisition fund with the Yiwu Industrial Park Management Committee, which will be used for the company's merger and acquisition integration in the LED industry chain, further deepening the company's development in the LED industry. At the same time, the Yiwu Industrial Park Management Committee provides the company with a series of preferential policies such as R&D subsidies, loan interest subsidies, and equipment investment subsidies to help the company's LED business development.

Qinshang Optoelectronics, whose main business is LED lighting, plans to transform into the education industry to achieve a dual main business layout. On the evening of January 3rd, the company released a restructuring plan, intending to issue 106 million shares at 14.16 yuan per share, for a total price of 2 billion yuan with a premium of over 30 times, to acquire 100% of the equity of Guangzhou Longwen Education Technology Co., Ltd. ("Guangzhou Longwen") held by 9 counterparties including Yang Yong, Huaxia Life Insurance, and Xin Zhongli. At the same time, the company plans to raise supporting funds of no more than 1.8 billion yuan. The company's stock will continue to be suspended.

The main business of Guangzhou Longwen is non-degree education information consulting services for the K12 (kindergarten to 12th grade) stage, which belongs to other service industries in the modern service industry. Through the above transaction, the listed company will achieve a dual main business layout of LED lighting products and K12 tutoring services. The counterparties promise that Guangzhou Longwen's cumulative net profit from 2015 to 2018 will be no less than 563.8 million yuan.

However, it is worth noting that as of August 31, 2015, the equity attributable to the parent company owners under the consolidated caliber of Guangzhou Longwen was negative, but its evaluated value reached 2.014 billion yuan, and the transaction price for its 100% equity was thus as high as 2 billion yuan.

Kingsun Optoelectronics' revenue has shown a downward trend in recent years. The aforementioned acquisition will undoubtedly help the company explore new profit growth points, but the 3151.52% asset valuation appreciation rate of the target assets in the plan can be described as a 'gamble' for the company.

The plan shows that Kingsun Optoelectronics intends to purchase 100% of the equity of Guangzhou Longwen held jointly by 9 transaction counterparts, namely Yang Yong, Huaxia Life, Xinzhongli, Zhang Jing, Zhu Song, Zeng Yong, Shenzhen Fukai, Beijing Longxiao Tianxia, and Beijing Longwu Jiu Xiao, by issuing shares and paying cash. Among them, the listed company will pay Yang Yong a cash consideration of 500 million yuan, and the remaining 1.5 billion yuan balance will be paid by Kingsun Optoelectronics through share issuance.

Regarding the above acquisition, Kingsun Optoelectronics stated that the company will achieve a dual-business layout of semiconductor lighting products and K12 tutoring services. At the same time, it will enable Guangzhou Longwen to achieve leapfrog development on the existing foundation, with significant improvements in business scale, brand building, and financing capabilities.

However, this plan will also bring the company goodwill exceeding 2 billion yuan. As of the evaluation base date of August 31, 2015, the book value of Guangzhou Longwen's total assets was 310 million yuan, the book value of total liabilities was 376 million yuan, and the book value of owners' equity attributable to the parent company was -66 million yuan. After being evaluated using the income approach, the total equity value of its shareholders was 2.014 billion yuan, an appreciation of 2.080 billion yuan compared to the audited net assets on the same basis, with an appreciation rate of 3151.52%.

Financial data shows that Guangzhou Longwen achieved operating revenues of 501 million yuan, 754 million yuan, and 853 million yuan respectively for January-August 2013, 2014, and 2013; net profits were 68.8503 million yuan, 42.2499 million yuan, and 11.3529 million yuan respectively. The transaction counterpart and other compensation obligor Longwen Global promised: the cumulative after-tax net profit achieved by the target company from 2015 to 2018 shall not be less than 564 million yuan.

Actual controller attends with employee stock ownership plan - Is Hua Xia Life actually losing money?

According to the draft, Guangzhou Longwen was established in 2011 with a registered capital of 6 million yuan. Regarding the shareholding structure, the natural person Yang Yong holds 48.27%, making him the largest shareholder of the company; Hua Xia Life holds 30%, making it the second largest shareholder.

According to the information, in December 2014, Guangzhou Longwen's shareholder Longwen Global, in order to implement the restructuring and listing, transferred its 90% capital contribution in Guangzhou Longwen to external parties.

At that time, under conditions including commitments for asset restructuring and performance levels, calculated based on the transfer price, the overall value of Guangzhou Longwen was 2.16 billion yuan. Hua Xia Life's capital contribution was as high as 648 million yuan. However, this time the transaction consideration for selling its 30% stake in Guangzhou Longwen to Qinshang Optoelectronics is only 600 million yuan. Based on this calculation, Hua Xia Life's investment in Guangzhou Longwen seems to have actually lost tens of millions of yuan.

However, Qinshang Optoelectronics is paying the transaction consideration to Hua Xia Life this time by issuing shares, and Hua Xia Life will receive 42,372,900 shares of Qinshang Optoelectronics. Based on the share price of 15.32 yuan the day before Qinshang Optoelectronics was suspended, the market value of this portion of equity reaches 650 million yuan. In addition, some analysts believe that, due to factors such as catch-up gains and the layout of the popular tutoring O2O sector, Qinshang Optoelectronics' stock may see a wave of gains after resumption of trading, and this move by Hua Xia Life may seem like a loss but is actually advantageous.

In fact, Huaxia Life also plans to increase its stake in Kingsun Optoelectronics.

To improve restructuring performance, Kingsun Optoelectronics plans to adopt a priced issuance method to raise supporting funds through a private placement to Li Xuliang, Li Shuxian, Liang Huitang, Huaxia Life, Huang Zhuoguang, and the Huachuang Kingsun Optoelectronics Employee Growth No. 1 Plan, with the total amount of funds raised not exceeding RMB 1.8 billion. The net proceeds will be fully used for Guangzhou Longwen's "Key Cities New Network Construction Project" and "Small-Class Tutoring Construction Project", among others.

It is worth noting that the issue price for the supporting funds raised by the listed company is RMB 14.16 per share, with the number of shares issued not exceeding 127 million. Among these, Huaxia Life plans to invest RMB 360 million to subscribe for 25.4237 million shares. Upon completion of the above transaction, it will hold a total of 67.7966 million shares in Kingsun Optoelectronics, representing an 11.16% stake, second only to the 16.78% held by Kingsun Group, thereby becoming the company's second largest shareholder.