Spending tens of billions of yuan to enter the game, Luxun Precision officially "built cars"

Tramway news: On the evening of February 11, Apple's supply chain enterprise Lixun Precision issued an announcement that the company signed a strategic cooperation framework agreement with Chery, and Chery New Energy intends to jointly establish a joint venture company, and agreed to purchase the relevant equity of Chery held by Qingdao Wudaokou for 10.054 billion yuan.

According to the minutes of the conference call of Luxshare Precision, the joint venture between Luxun Precision and Chery will do ODM (original design manufacturer) OEM. The cooperative subsidiaries established by the two parties will be established within March, with Luxun Precision paying 500 million yuan to hold 30% of the registered capital, and Chery New Energy to subscribe 1.167 billion yuan and holding 70% of the registered capital. Luxshare Precision gives full play to the advantages of its own parts and components, and cooperates with Chery as an ODM to build a good car for others. This joint venture is not specifically for Chery to build cars, but for the whole market needs of artificial vehicles.

Compared with OEM, the ODM foundry mode, the foundry can directly contract the entire process from vehicle design to production, for the future want to enter the car manufacturing enterprises, only need to provide the brand, everything else can be completed by the ODM foundry. Luxun Precision also said that the ODM business has a relatively clear landing project, which will be put into production in about the next 12-18 months.

Judging from the past experience of Luxun Precision, it is shifting from Apple's supply chain enterprises to the new energy vehicle track.

Luxshare Precision was founded in 2004, through apple OEM to achieve rapid development, in the early years to win the Apple Watch and Airpods major orders of Luxun Precision, the past few years has been good performance. From 2016 to 2020, the company's revenue rose from 13.763 billion yuan to 92.501 billion yuan, with an average annual compound growth rate of 88.72%. In terms of net profit attributable to the mother, it rose from 1.157 billion yuan to 7.225 billion yuan, with an average annual compound growth rate of 84.15%.

With the help of FOUNDC Apple, Luxshare Precision has achieved a leap in performance. However, the deeper and deeper binding with Apple is also making the risks that Luxshare Precision needs to face more focused. According to Luxun Precision's 2020 data, Apple contributed 63.843 billion yuan in sales, accounting for about 70% of total revenue. The company's second largest customer sales were only 4.234 billion yuan.

Since the beginning of 2020, the revenue growth rate of Luxun Precision and the growth rate of net profit attributable to the mother have declined significantly. According to the latest three quarterly report data, the net profit of Luxshare Precision in the first three quarters of 2021 was 4.69 billion yuan, an increase of 0.21% year-on-year, but the net profit in the third quarter was 1.6 billion yuan, down 25.28% year-on-year.

At the same time, affected by the epidemic and the rise in raw material prices, the company prepared materials in advance, resulting in a significant increase in inventory. As of the end of September 2021, Luxshare Precision's inventory was 24.337 billion yuan, an increase of 82% compared with the end of December 2020.

Seeing that the performance of electronic mobile phones is expected to peak, Luxshare Precision began to turn to the new energy vehicle track to seek a second growth point.

Luxshare Precision has been involved in the field of automotive electronics as early as 2012. The company said that in the automotive business sector layout for more than ten years, has the ability to provide customers with high-voltage, high-current and other automotive power solutions and related automotive wiring harnesses, electronic modules and other products and services.

In the first half of 2021, the company's automotive interconnection products and precision components achieved revenue of 1.774 billion yuan, accounting for 3.68%, while its consumer electronics revenue was 40.4 billion yuan.

However, although the proportion of the automotive business is small, its revenue growth is rapid, second only to the growth rate of computer interconnection products. Moreover, in the case of unequal declines in the gross profit margins of the rest of the products, the gross profit of automotive interconnection products has increased by a slight margin of 0.24%.

Wang Laichun, chairman and general manager of Luxun Precision, said that Smart EV is an opportunity that Chinese automakers have not encountered in a hundred years. The opportunities it brings include not only the whole vehicle, but also the more vital Tier 1 (tier 1 supplier of the depot). The market size of Tier1 itself is almost 70% of the total output value of all car companies, but at present, there are only 8 Chinese companies among the world's top 100 Tier1 manufacturers.

Wang Laichun further explained that Lixun Precision is an investor in Chery Holdings, Lixun Precision does not build a whole vehicle, but cooperates with Chery New Energy to develop the ODM business of building a good car for others, and the company aims to seize the opportunity window to enter the world's leading Tier1.