Orient Materials (603110) announced on the evening of April 9 that it plans to raise no more than 2 billion yuan (including the original amount), all of which will be invested in the project of “acquisition of 51% equity in TD TECH”. The target company and minority shareholder Huawei are involved in wireless products and terminal products in the industry , Internet of Things products and other business sectors have reached a certain cooperative relationship. After the transaction is completed, TD TECH will become the company’s holding subsidiary.
Dongfang Materials is mainly engaged in the production and sales of inks for flexible packaging, polyurethane adhesives for lamination, and PCB electronic inks. It is one of the ink manufacturers with strong competitive advantages and brand influence in the Yangtze River Delta region. In recent years, with the drastic changes in the macroeconomic situation and market environment, the main business of Oriental Materials has been greatly affected. In particular, the price of raw materials is at a historically high level, which greatly reduces the profit margins of downstream chemical companies.
In this context, on the one hand, Dongfang Materials focuses on improving the technical capabilities and sales capabilities of its main business, strengthening cost reduction and increasing efficiency, and optimizing business layout; on the other hand, it also urgently needs to develop new business directions and create new profit growth points .
TD Tech, a wholly-owned subsidiary of TD TECH, the target company that Dongfang Materials plans to acquire this time, and Chengdu TD Tech, a wholly-owned subsidiary, are communication connection solution providers for industry customers, specializing in wireless communication products, terminal products, and IoT modules. A high-tech enterprise engaged in product research and development, sales and related services, has independent core intellectual property rights, rich technical reserves and continuous research and development capabilities. Its products are widely used in energy, transportation, security, electric power, automobiles, industry and other fields. Enjoy a high reputation inside.
Dongfang Materials intends to acquire 51% equity of TD TECH and obtain control rights. On the basis of the original main business, through the layout of wireless communication, terminal products, and Internet of Things business segments, it will cut into the track of wireless communication, terminal products, and Internet of Things to form an “ink ink” + Communication” dual-main business operation mode, realizing the strategic transformation and upgrading of the company’s main business to diversification and technology.
According to the unaudited financial statements provided by the target company, in 2021 and 2022, the operating income of the target company will be 5.206 billion Hong Kong dollars and 8.622 billion Hong Kong dollars respectively, and the net profit will be 52.9732 million Hong Kong dollars and -157 million Hong Kong dollars respectively.
According to the announcement of Oriental Materials, in 2022, under the background of a substantial increase in operating income, the net profit of the target company will be negative. The main reason is that the target company will actively expand the terminal product business and increase the scale of business investment in 2022, resulting in an increase in the amount of bank credit and significant interest expenses. On the other hand, the inventory of terminal products is relatively large, and the amount of provision for inventory decline in 2022 will be relatively high, which will affect the level of net profit.
From the shareholding structure of TD TECH, NOKIA and Huawei hold 51% and 49% of the shares respectively.
Dongfang Materials stated that the target company has reached a certain cooperative relationship with the minority shareholder Huawei in various business sectors such as wireless products, terminal products, and Internet of Things products. In terms of technology, some products of the target company are based on Huawei’s authorization, and are developed and optimized on the basis of Huawei’s underlying technology or existing products; in terms of sales, the sales of some products of the target company cooperate with Huawei. Therefore, if the cooperative relationship between the target company and Huawei changes in the future, it may have an adverse impact on the business development of the target company.
In addition, Dongfang Materials also reminded in the announcement that TD TECH’s articles of association stipulated the terms of shareholders’ priority transfer rights. As of the announcement date, the company has not yet obtained the commitment document from TD TECH’s minority shareholder Huawei to waive the priority transfer rights. The transaction has the risk that the minority shareholder Huawei will claim the right of first transfer, which will make the transaction impossible to implement.
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