Looking at the assets of "Huaxi Village", Vantone Development's proposed cross-border optical module was asked: is it a hot spot?
On November 27, Vantone Development (600246. SH) opened high and went low, hitting the down limit about 10 minutes after opening. Although the intraday limit was opened at one point, it still closed with a down limit.
On November 26, Vantone Development issued a reminder announcement on the planning of a major asset restructuring and the signing of the "Framework Agreement on the Acquisition of a Controlling Stake in Source Photonics Holdings" (hereinafter referred to as the "Framework Agreement"), and the company is planning to purchase a controlling stake of not less than 51% of Source Photonics Holdings (Cayman) Limited (hereinafter referred to as "Source Optoelectronics"). After the completion of this acquisition, Source Optoelectronics will become a holding subsidiary of Vantone Development. It is worth noting that another A-share listed company, Huaxi shares (000936.SZ) held nearly 30% of the shares of Source Optoelectronics, in June this year, but also because of the interactive platform "Source Optoelectronics 800G optical modules have been delivered in small batches", Huaxi shares won 5 daily limits in 6 trading days.
As a company whose main business is real estate development, Vantone Development has made a big leap into local optical communication and received objections from two directors. In addition, before the announcement was disclosed, the company's stock price had touched abnormal fluctuations, which also attracted the attention of the Shanghai Stock Exchange. Late at night on November 26, the Shanghai Stock Exchange issued a letter of inquiry, requiring Vantone Development to verify and disclose the company's business development plan and related risks, and explain whether the company has the motive and situation of speculating on concepts and hot spots.
Signed a framework agreement to control the supplier of optical communication components
According to the Framework Agreement, Vantone Development, as Party A of the Agreement, intends to sign the Framework Agreement with Party B, which is jointly referred to as Party B with 12 institutions, including Shanghai Lucun Enterprise Management Consulting Partnership (Limited Partnership) and Shanghai Yucun Enterprise Management Consulting Partnership (Limited Partnership), and Party C Jianshi Wang, Wang Hongyu and Source Optoelectronics, stipulating that Vantone Development intends to acquire 37.6655% of the equity interests of Source Optoelectronics held by Source Optoelectronics Employee Share Incentive Plan (hereinafter referred to as "ESOP") in cash and acquire all the existing shares of Source Optoelectronics held by Party B to achieve the transaction purpose of the Company ultimately holding no less than 51% of the controlling stake of Source Optoelectronics.
At the same time as the signing of the Framework Agreement, Vantone Development signed a Convertible Bond Investment Agreement with Source Photonics, LLC (hereinafter referred to as "Source Photonics") and Source Photonics, LLC (hereinafter referred to as "Source USA") and Source Photonics, and a Preferred Stock Warrant Agreement with Source Photonics It is agreed that in order to achieve the purpose of Series D investment and financing for Source Optoelectronics, the company intends to first provide Source Chengdu with a total of RMB convertible bonds equivalent to 50 million US dollars.
After Vantone Development completes the corresponding overseas investment procedures, the entire US$50 million convertible bond borrowings will be converted into equity investment funds from Vantone Development in Source Optoelectronics at a valuation of US$620 million before the investment (i.e., the subscription price of US$2.6179 per share).
The announcement also reminded that considering the factor of issuing an additional 5% ESOP according to the existing equity structure (fully diluted basic caliber) of Source Optoelectronics, and the factor that in addition to this transaction, Vantone Development invested another US$50 million in convertible bonds that have been converted into preferred shares of Source Optoelectronics, the equity ratio of the final acquisition of Chengxing needs to be determined after further negotiation. Source also said that the agreement signed in this transaction is only a framework agreement, and there is a risk that it will not pass the relevant decision-making and approval procedures of the parties to the transaction.
What is the asset color of the optical communication target?
There is a large span between real estate and optical communications, and "whether the company has used asset restructuring to speculate on concepts and hot spots" has become the first concern in the inquiry letter of the Shanghai Stock Exchange. So, what is the quality of Source Optoelectronics, the target of Vantone Development's acquisition?
According to the data, Source Optoelectronics' main products include optical chips, optical components and optical modules, and a variety of optical chips for optical communication have been shipped in batches, which are used in self-produced optical modules with different transmission rates, and its solutions and products are widely used in data centers and telecom communication scenarios. According to the 2022 audit report provided by Source Optoelectronics, its total assets at the end of 2022 were approximately US$319 million, net assets were approximately US$124 million, sales revenue was US$226 million, and net profit was approximately US$26.8 million in 2022.
According to reports, Source Optoelectronics mainly carries out its main business through its controlled subsidiaries, among which, the Chengdu subsidiary of Source Optoelectronics is responsible for the development and production of optical components and optical modules, the Changzhou subsidiary is responsible for the development and production of optical chips and optical components, the Shenzhen subsidiary is responsible for domestic sales business, the Taiwan subsidiary is responsible for the production of optical chips, optical components and optical modules, the United States subsidiary is responsible for North American business development, and the Macau subsidiary is responsible for overseas export business.
In the field of optical transceivers, Source Optoelectronics ranks high in the world. According to the latest version of the 2022 Global Optical Transceiver TOP10 list released by LightCounting, a market research institute in the optical communication industry, a total of 7 Chinese optical module manufacturers were shortlisted, and Source Optoelectronics ranked 10th. InnoLight Technology ranked tied for 1st, and Huawei, Accelink, Hisense Broadband, Xinyisheng, and Huagong Zhengyuan ranked 4~8 respectively.
2010~2022 Global TOP 10 Optical Modules Image source: Dongxing Securities
In terms of optical chip business, Source Optoelectronics' key chips have entered the mass production stage, leading some domestic counterparts.
According to the research report of Debang Securities, low-end optical chips have been basically localized, and mid-to-high-end optical chips are still dominated by overseas giants. At present, mainland optical chip manufacturers basically have the core technology of 2.5G and 10G optical chips, but the 25G and above high-speed optical chip market is still dominated by overseas manufacturers, and the number of deliveries from domestic manufacturers is relatively small in the data center market and EML laser chips.
As high-end optical chips are still dominated by overseas companies, the development of upstream optical chips of domestic high-end optical modules is still limited by leading overseas companies. For example, in terms of the commercialization of core optical chips represented by 53G Baud in 100Gb/s 10/40km optical modules, most of the leading companies in mainland China, such as Accelink (002281. SZ), Wuhan Minxin, Xinsijie, etc. are still in the R&D stage, while Source has crossed the sample stage and entered the stage of large-scale mass production.
Image source: Debang Securities Research Report
The acquisition target has made the A-share company 6 days and 5 boards
Previously, Huaxi Co., Ltd. relied on the investment platform to say that "Source Optoelectronics 800G optical modules have been delivered in small batches", and the company's stock price won 5 daily limits in 6 trading days.
According to Huaxi Co., Ltd.'s 2023 semi-annual report, Huaxi Co., Ltd. holds 28.17% of Source Optoelectronics through Shanghai Qilan Enterprise Management Consulting Partnership (Limited Partnership) (hereinafter referred to as "Shanghai Qilan").
Huaxi's acquisition of Source Optoelectronics was earlier. In February 2021, Shanghai Qilan, the controlling entity of Huaxi Co., Ltd., completed the acquisition of part of the interests of Diamond Hill, L.P., and Shanghai Qilan held 83.37% of the shares of Diamond Hill, L.P. Partnership. At that time, Diamond Hill, L.P. Partnership held 34.66% of the equity of Source Optoelectronics, and based on this, Shanghai Qilan indirectly held 28.89% of the equity of Source Optoelectronics. At present, according to the latest disclosure of Vantone Development Announcement, Diamond Hill, L.P. Partnership holds 30.39% of the shares of Source Optoelectronics, and Shanghai Qilan holds 2.35% of the shares of Source Optoelectronics.
Silver Persimmon Finance noticed that among the counterparties of Vantone Development's acquisition of equity, Party B, which is collectively known as 12 institutions, is also inextricably linked with Huaxi shares. Among them, Shanghai Lucun Enterprise Management Consulting Partnership (Limited Partnership), Shanghai Yucun Enterprise Management Consulting Partnership (Limited Partnership), Shanghai Anjian Enterprise Management Consulting Partnership (Limited Partnership), Yicun Zhigeng International Co., Ltd., and Yicun International Holdings Co., Ltd. are collectively referred to as the "Yicun Capital Control Entity", holding a total of 28.55% of the shares of Source Optoelectronics, and Yicun Capital is a shareholding company of Huaxi Co., Ltd., as of the first half of 2023, Huaxi Co., Ltd. holds 40.92% of Yicun Capital Equity.
Image source: Vantone Development Announcement
Because of stepping on the market hotspot of "800G optical module", Source Optoelectronics has brought attention to Huaxi shares. For the acquisition of the control of Source Optoelectronics by Vantone Development, the securities department of Huaxi shares told Silver Persimmon Finance that the company's current shareholding in Source Optoelectronics has not changed, and Vantone Development's acquisition of the equity of Source Optoelectronics in the hands of a village capital and other small shareholders, "At present, there is not much impact on Huaxi shares, the company has not sold its shares, and the main business of a village capital is merger and acquisition investment, which has invested in Source Optoelectronics for several years, and may be in the stage of planning to exit." ”
"At present, the above transaction is still in the framework agreement stage, if Vantone Development finally successfully acquires the control of Source Optoelectronics and injects the assets of Source Optoelectronics into its main business, it is equivalent to Huaxi Co., Ltd. will hold the equity of a subsidiary of Vantone Development as a second shareholder in the future. The above-mentioned person from the Huaxi Securities Department further said.