Original title: The third quarterly report profit increased sharply, the stock price rose 2 months in advance, Dongmu shares: spend all the money to engage in mergers and acquisitions, first suffer from the performance of the face, and then welcome the performance reversal?
There are always mysterious funds in the market that can know the good news in advance.
Author | Changshan
Edit | Xiaobai
On August 6, 2019, Dongmu completed the re-election of the board of directors, and Zhu Zhirong, who was 55 years old at the time, was promoted to chairman of the listed company and concurrently served as general manager, and Lu Debao, who had served as chairman since August 2004, retired.
The two chairmen, who are 20 years apart in age, have been in charge of the same company and have diametrically opposed operations in business development.
During his tenure, Chairman Lu insisted on intensive cultivation in the powder metallurgy business, and mainly focused on fundraising, and completed two private placements in 2014 and 2016 respectively, totaling 1.2 billion yuan. From 2019 to 2022, he spent more than 1.7 billion yuan to acquire the equity of a number of companies, expanding from a single business to three major businesses, and also invested 700 million yuan to expand the production capacity of soft magnetic materials.
After a fierce operation, what is the performance?
Let's take a look at the capital operation story led by Chairman Zhu first.
First, the story of capital operation
Dongmu Co., Ltd., formerly known as Dongmu Co., Ltd., was established in July 1994 as a Sino-foreign joint venture, and the following year, Mu Metal Co., Ltd. held 60% of the shares of Dongmu Co., Ltd. through capital increase and became the controlling shareholder of the latter.
The initial business of the listed company is powder metallurgy, and its products can be divided into powder metallurgy products (including structural parts, oil-impregnated bearings and friction material products), magnetic materials, cemented carbide materials and products, and high melting point metal materials and products, and from its listing in 2004 to 2019, the company's products are mainly used in automobiles, motorcycles, home appliances, power tools, agricultural machinery and other fields.
In August 2019, Chairman Zhu began to buy and buy immediately after taking office, investing a large amount of money to buy a controlling stake in a number of companies to quickly expand the scale of revenue, but the profit was very embarrassing.
In 2021, the loss due to the impairment of the goodwill of the acquired Shanghai Fuchi became the second loss since its listing in 2004. In 2022, the operating income will exceed a record of 3.7 billion yuan, but the non-net profit will only be 140 million yuan, which is comparable to the level in 2015.
(Market capitalization APP tabulation)
(1) A transaction brings out a hollowed-out story
On August 6, 2019, Dongmu Co., Ltd. completed the re-election of the board of directors, and Zhu Zhirong took over as the new chairman.
On the same day, the listed company announced the acquisition of 61% of the equity of Dongguan Huajing Powder Metallurgy Co., Ltd. (hereinafter referred to as Dongguan Huajing) at a price of about 110 million yuan, and the 100% equity of Dongguan Huajing corresponds to a valuation of 180 million yuan.
According to public information, Dongguan Huajing is mainly engaged in the research and development, design, manufacturing and sales of powder metallurgy products; From January to May 2019, the operating income was 79.71 million yuan, the net profit loss was 23.81 million yuan, the total assets were 284 million yuan, the total liabilities were 224 million yuan, the net assets were 59.51 million yuan, and the asset-liability ratio was 79%. In 2018, the operating income was 198 million yuan, and the net profit loss was 7.27 million yuan.
Although it is a loss-making company, Dongmu shares resolutely acquired, and thus contributed tens of millions of investment income to the relevant parties.
The four sellers of Dongguan Huajing are all newly established shell companies, as shown in the following table:
(Market capitalization APP tabulation)
From the above table, it can be clearly seen that the four shell companies are controlled by Peng Yiping, Zhou Zhongwu and others, and according to the relevant announcement of Jinsheng Intelligence (now changed to Genesis), Peng Yiping and others are the managers of Dongguan Huajing.
In December 2017 and February 2019, Jinsheng Intelligent transferred a total of 90% of the equity of Dongguan Huajing to the management of Dongguan Huajing, with a total transaction price of 92.33 million yuan.
What is particularly outrageous is the transfer in February 2019, the four shell companies controlled by Peng Yiping and others obtained 60% of the equity of Dongguan Huajing for 52.94 million yuan, and the valuation of 100% of the target company corresponds to 88.23 million yuan, while in August 2019, Dongmu shares received 61% of the equity of Dongguan Huajing at a price of 110 million yuan, and the valuation of 100% of the target company corresponds to 180 million yuan at this time.
Just six months before and after the two transactions, the valuation of the target's 100% stake has more than doubled.
Peng Yiping and others have doubled their investment income in just 6 months.
Is Jinsheng Intelligent sold cheaply, or is Dongmu shares expensive?
In December of the same year, Dongmu Co., Ltd. acquired another 14% stake in Dongguan Huajing for 25.2 million yuan, and after the transaction was completed, the former held 75% of the latter's equity, which also added 64.92 million yuan of goodwill.
(2) Shanghai Fuchi with lightning changing face
After a small test, the directors of Dongmu decided to play big.
On January 14, 2020, the board of directors of the listed company announced the acquisition of 75% equity of Shanghai Fuchi for 1.039 billion yuan in cash, and the corresponding valuation of 100% equity of Shanghai Fuchi was 1.173 billion yuan.
According to the acquisition announcement, the main business of the target company, Shanghai Fuchi, is to use metal injection molding technology to produce small, three-dimensional complex high-performance structural parts, and provide cost-effective metal injection molding parts, which are widely used in mobile Internet terminals and communication products, tool products, automotive products and medical devices.
Dongmu said that the acquisition of the target company is based on the company's strategic layout.
Before the acquisition, as of September 30, 2019, Shanghai Fuchi had total assets of 1.305 billion yuan, total liabilities of 574 million yuan, net assets of 731 million yuan, operating income of 749 million yuan in January ~ September 2019, and net profit attributable to the parent company of 47.3 million yuan.
The company was profitable before it was acquired, but after it was merged into a listed company, its performance changed quickly.
On August 6, 2020, the transaction was completed, and Dongmu Co., Ltd. holds 75% of the equity of Shanghai Fuchi.
In March of the following year, Dongmu Co., Ltd. subscribed for 8.72 million shares of new share capital with 75% equity of Dongguan Huajing, and the remaining 2.9075 million shares were subscribed by some shareholders of Shanghai Fuchi and Dongguan Huajing Company; after the completion of the transaction, Dongguan Huajing Company became a wholly-owned subsidiary of Shanghai Fuchi, and the company held 75% of the equity ratio of Shanghai Fuchi unchanged.
Dongguan Huajing was included in the consolidated statements of Shanghai Fuchi.
There are a few oddities with the deal.
01. No performance gambling and performance change
Another strange feature of the listed company's acquisition of Shanghai Fuchi is that the original shareholders of the target company do not need to make a performance bet, which means that even if Shanghai Fuchi loses a mess, it has nothing to do with the original shareholders. It has to be said that this is rare in A-share cash acquisition cases of more than 1 billion yuan.
After the close of trading on January 6, 2022, Dongmu Co., Ltd. released the 2022 annual performance forecast, with a net profit attributable to the parent company in 2021 of 0 yuan to 30 million yuan, a year-on-year decrease of 66% to 100%, and a net profit of -51 million yuan to -26 million yuan after deducting non-profit, a year-on-year decrease of 175% to 247%, mainly due to the provision for goodwill impairment.
In the reply to the inquiry letter of the exchange, Dongmu shares disclosed that the performance of Dongguan Huajing and Shanghai Fuchi in the relevant years is shown in the screenshot below.
(Source: Screenshot of Dongmu shares' announcement)
Judging from the disclosed data, the performance losses of Shanghai Fuchi and Dongguan Huajing are increasing; because there is no performance bet, the decline in stock prices caused by the change in performance can only be borne by the majority of shareholders.
02. The middleman earns the difference
A puzzling operation in the acquisition of Shanghai Fuchi.
According to the acquisition announcement disclosed by Dongmu Shares, the sellers are Zhong Wei, Shanghai Zhongyu Enterprise Management Co., Ltd. (hereinafter referred to as Zhongyu Company), Chuangjing Investment, Yu Ligang and other four parties.
(Source: Screenshot of Dongmu shares' announcement)
Zhong Yu has the highest proportion of shares transferred by the company, which is 49.76%, corresponding to the transfer price of about 800 million yuan, but as of January 14, 2020, Zhong Yu company actually only has 26.5% of the equity of the target company, and 23.26% of the equity has not been received.
(Source: Screenshot of Dongmu shares' announcement)
The announcement is also blunt: the equity of the target company held by Zhong Yu Company is transferred from Pan Ailian, Xie Guoqiang, Pan Keqin, Zhao Weiqiang, the original shareholders of Shanghai Fuchi, Suzhou Industrial Park Yuanxing Bingsheng Equity Investment Partnership (Limited Partnership) (hereinafter referred to as "Yuanxing Bingsheng"), Haitong Kaiyuan Investment Co., Ltd. (hereinafter referred to as "Haitong Kaiyuan"), etc.
According to the industrial and commercial registration information, Yu Ligang became a director of Shanghai Fuchi in June 2018, and Zhong Yu Company is a sole proprietorship of Yu Ligang, established on September 26, 2019.
(Source: Screenshot of Dongmu shares' announcement)
Why did the original shareholders of Shanghai Fuchi first transfer their equity to a company that was established less than 4 months ago, instead of directly transferring it to a listed company?
Is Zhong Yu playing the role of a middleman in making the difference? If so, who makes it make the difference?
(3) Acquisition of affiliated companies at a high premium
Since the start of mergers and acquisitions, Dongmu shares have been out of control.
Although the performance of the two companies acquired in 2019 and 2020 has been on the street, it has not affected the determination to continue mergers and acquisitions.
After the market on January 6, 2022, the listed company issued a performance pre-reduction announcement, stating that it is expected that the net profit attributable to the parent company in 2021 will be 0 yuan to 30 million yuan, a year-on-year decrease of 66% to 100%, and the net profit after deducting non-profits will be -51 million yuan to -26 million yuan, a year-on-year decrease of 175% to 247%, mainly due to the provision for goodwill impairment.
Just 10 days after the pre-reduction announcement, on January 17, 2022, the acquisition plan was announced again: to acquire the remaining 40% equity of Zhejiang Dongmu Keda, a holding subsidiary, for 232 million yuan in cash, and to acquire 97% of the equity of Deqing Xinchen Company for 194 million yuan in cash.
(Market capitalization APP tabulation)
It should be pointed out that among the two companies that Dongmu shares are preparing to acquire, Ningbo Xinjinguang Investment Management Co., Ltd. (hereinafter referred to as Xinjinguang Investment) plays an important role, and the latter made a profit of 130 million yuan from two transactions.
The shareholders of Xinjinguang Investment are directly or indirectly invested and established by 62 directors, senior managers and key management personnel and technical (business) personnel of the listed company Dongmu Co., Ltd.
(Source: Dongmu New Materials Group Co., Ltd.'s Announcement on the Reply to the Inquiry Letter of the Shanghai Stock Exchange, Announcement No. (Pro) 2022-011)
For a long time, the executives of listed companies took cash from listed companies by selling assets.
The listed company's acquisition of the two target companies was a substantial premium acquisition, and the value of all the equity of Zhejiang Dongmu Keda shareholders was valued at 520 million yuan, with an appreciation rate of 341%, and in addition, Ke Xin's transfer of its 30% equity interest in Dongmu Keda was transferred at a valuation of 600 million yuan, and he did not bear the performance VAM liability.
The value of all shareholders' equity of Deqing Xinchen Company is 203 million yuan using the income method, with an appreciation rate of 296.5%.
01, Dongmu Keda lives by borrowing
From the perspective of business scope, the target company is engaged in the production and sales of magnetic materials, the manufacture of electronic components, the manufacture of transformers, rectifiers and inductors, etc., and the products range from soft magnet powder cores to high-performance iron-nickel magnetic powder cores, etc., which are used in photovoltaic inverters, new energy vehicles, charging piles, 5G communications and other fields.
Judging from the disclosed information, Dongmu Keda's performance has increased year by year from 2019 to 2021, but the working capital and net operating cash flow have continued to flow out.
(Source: Screenshot of Dongmu shares' announcement)
The asset-liability ratio of Dongmu Keda is very high, which has been above 80% since 2019, and it should be pointed out that the other accounts payable are funds borrowed by Dongmu shares.
(Source: Screenshot of Dongmu shares' announcement)
The whole logic can be understood as follows: the executives of the listed company control the target company Dongmu Keda through Xinjinguang Investment, and the listed company then lends money to the latter for development, and when the latter realizes profits, the listed company acquires the target company at a high premium.
It is rare to be so open-minded, justifiable, and unscrupulous to take money from listed companies.
02. Deqing Xinchen's only customer is Dongmu Keda
Deqing Xinchen is mainly engaged in the production of nano-composite iron-silicon-nickel inductance coils, including iron-silicon powder, iron-silicon aluminum powder, iron-nickel powder, super iron-silicon aluminum powder, etc. The company's performance is also growing year by year, with an operating income of 165 million yuan and a net profit of 19.03 million yuan in 2020.
(Source: Screenshot of Dongmu shares' announcement)
The two major shareholders of Deqing Xinchen are Xinjinguang Investment and Ke Xin, holding 55% and 40% of the shares respectively. In addition, Xinjinguang Investment also directly affects the operation of Dongmu Keda.
In response to the exchange's inquiry letter, the listed company disclosed that Dongmu Keda was the only customer of Deqing Xinchen, and the former's performance was all contributed by the latter.
The relationship between Dongmu Keda and Deqing Xinchen is so close that people can't help but doubt the authenticity of the latter's performance.
2. Analysis of business conditions: In the past three years, the increase in income has not increased profits, and financial expenses have eaten up profits
Lu Debao served as the chairman of Dongmu Co., Ltd. from August 2004 to August 2019, and under his rule, except for the loss in 2009, he achieved profitability in other years, and his performance was not a rapid progress, but relatively stable; Zhu Zhirong has been in charge of the listed company since August 2019, and his performance has fluctuated greatly, and there will be a loss in 2021, although the revenue in 2022 will hit a historical record, but the non-net profit will only recover to the level of 2015.
Of course, we must also see that the company's performance has rebounded significantly in the third quarter of this year, as for whether it is a flash in the pan or a complete reversal, it will be seen and seen.
(Market capitalization APP tabulation)
(1) Revenue composition: The powder metallurgy business has encountered a ceiling
At present, Dongmu shares of the business mainly includes powder metallurgy P&S, soft magnetic composite SMC, metal injection molding MIM and other three major areas, powder metallurgy is a traditional business, the current revenue accounts for about 50% of the total revenue, the business in the last two years hit the ceiling, no growth; soft magnetic materials is mainly the acquisition of Dongmu Keda and Deqing Xinchen to expand, in recent years to maintain a certain growth.
The metal injection molding business is the company's second largest business, mainly expanded through the acquisitions of Shanghai Fuchi and Dongguan Huajing.
(Market capitalization APP tabulation)
The gross profit margin of SMC has increased, reporting 21.8% in mid-2023, an increase of nearly 4 percentage points from the 18% level from 2018 to 2021.
The gross profit margin of powder metallurgy P&S has declined very significantly, from 2016 to 2017, it will be about 36%, and it will drop to about 19.5% in 2022 and 2023.
The MIM gross margin of metal injection molding remained stable at around 22% from 2020 to 2022.
The company's consolidated gross profit margin continued to decline, falling to 18.7% in the 2023 interim report, down 3 percentage points from 2022.
(Market capitalization APP tabulation)
01. Powder pressing and forming P&S
Powder pressing is the traditional business of Dongmu Co., Ltd., and its products are used in automobiles, home appliances and other fields, and its production capacity ranks among the top in the industry.
In the traditional automotive field, it is mainly used in engines (VVT, VCT, etc.), transmissions (oil pumps, etc.), chassis systems (shock absorbers, four-wheel drive, clutch plates, etc.). In the field of home appliances, it is mainly used in air conditioning compressors and refrigerator compressor parts. According to the data of the Powder Metallurgy Association of China Machinery Association, the company's market share will reach 26.7% in 2021, and it has been at the forefront of the domestic powder metallurgy industry for many years.
(Powder pressing product display, source: Dongmu official website)
Since 2019, the company's output has been around 50,000 tons, but the sales volume is significantly lower than the production, and yes, the company's inventory is getting larger and larger, reaching 10,900 tons at the end of 2022, accounting for 20% of the current output.
(Market capitalization APP tabulation)
02, Metal Injection Molding MIM
The metal injection molding business is currently the second largest source of revenue for Dongmu Co., Ltd., with an operating income of 382 million yuan in the first half of 2023, a year-on-year decrease of 34% from 578 million yuan in the previous year, accounting for 22% of the total revenue of the main business.
The downstream of metal injection molding products are mainly consumer electronics, smart wearables, medical devices, automobiles and other fields, and the main business income in the second quarter increased by 71% compared with the first quarter, with a rapid recovery.
According to the survey information on November 1, 2023, the MIM sector benefited from the recovery of the downstream consumer electronics industry and the volume of folding machine projects of large customers, and the sales revenue stabilized and rebounded, and the third quarter achieved profitability, and the business is likely to be the fastest growing in the second half of 2023.
(MIM product application, source: Shanghai Fuchi official website)
03. Soft magnetic composite material SMC
Soft magnetic composites (SMC) have a wide range of applications in power electronics, covering new energy photovoltaic inverters, new energy vehicles, charging piles, active filters, energy storage, hydrogen fuel cells and other fields.
The business is the fastest growing business in terms of production and sales, with an output of 23,300 tons and a sales volume of 22,500 tons at the end of 2022, and according to the company's disclosure in November 2022, its SMC production capacity will reach 46,000 tons by the end of 2023.
In addition, the company's 2023 semi-annual report disclosed that the "60,000-ton-per-year soft magnetic material industrial base project" under construction in Linyi, Shanxi Province is accelerating.
(Market capitalization APP tabulation)
At present, Dongmu Co., Ltd.'s soft magnetic composite SMC business is mainly responsible for Dongmu Keda, and the related products are shown in the screenshot below.
(Soft magnetic composite product display map, source: Dongmu Keda official website)
(2) Improved performance: MIM business achieved profitability in the third quarter
Dongmu's performance in the third quarter of 2023 has improved significantly.
In the first quarter of 2023, the company deducted a non-net profit loss of 14.27 million yuan, turned around in the second quarter, deducted a non-net profit of 11.62 million yuan, and deducted a non-net profit of 67 million yuan in a single quarter in the third quarter, an increase of 55.4% year-on-year and a 476% increase from the second quarter.
According to the survey on November 1, 2023, the executives of Dongmu Co., Ltd. disclosed that the sales revenue of the P&S (powder pressing) segment reached a high level in the same period in history, the MIM (metal injection molding) sector benefited from the recovery of the downstream consumer electronics industry and the impact of the volume of folding machine projects of large customers, and the sales revenue stabilized and rebounded, and the sales revenue of the SMC (soft magnetic composite material) segment increased by 36.82% from January to September compared with the same period last year Although the sales growth rate slowed down in the third quarter due to the temporary impact of PV downstream destocking.
(Market capitalization APP tabulation)
In addition, the company's operating cash flow was relatively normal.
The operating cash inflow at the end of the third quarter of 2023 was 2.06 billion yuan, which was 0.74 of the operating income of 2.78 billion yuan at the end of the period, which was about the same as the end of the second quarter, but decreased from the end of the first quarter.
The net cash flow ratio also showed a downward trend, but the absolute value of net operating cash flow increased, with net operating cash flow at the end of the third quarter of 2023 being 183 million yuan, an increase of nearly 70 million yuan from the end of the second quarter, and the net cash ratio at the end of the period was 1.88.
(Market capitalization APP tabulation)
At the end of the third quarter of 2023, the company's inventory balance was 825 million yuan, a decrease of nearly 80 million yuan, or 9%, from 900 million yuan at the beginning of the year (the end of the fourth quarter of 2022), while the balance of notes receivable and accounts receivable changed little in the same period.
(Market capitalization APP tabulation)
The company's stock price rose against the trend from August 10, 2023 to October 30, 2023, with a range increase of more than 65%, and many investment institutions increased their positions significantly in the third quarter.
(3) Rising interest-bearing liabilities eat up profits
Zhu Zhirong's Dongmu shares have been buying and buying since August 2019, and in addition to accumulating considerable goodwill, there is also rising debt, with an asset-liability ratio of 57.5% and an interest-bearing debt ratio of 44.6% at the end of the third quarter of 2023.
(Market capitalization APP tabulation)
The surge in interest-bearing liabilities led to a rapid increase in financial expenses (interest expense), with interest expense of $70 million in 2019, a record since the company's rise, and another all-time high of $114 million in 2021. In 2021, the financial expenses were 96.95 million yuan, which was 2.4 times the net profit of 40.23 million yuan.
The financial expenses in the first three quarters of 2023 were 77.6 million yuan, 0.8 times the net profit of 97.51 million yuan in the first three quarters.
Obviously, the interest-bearing liabilities of more than 2 billion yuan have led to the high financial costs of Dongmu shares and the devouring of more profits, which is a problem that the company must face and must effectively solve.
(Market capitalization APP tabulation)
The companies under Chairman Zhu have played a lot of tricks, but for investors in the secondary market, they tend to pay more attention to performance, especially performance reversal.
3. Investment institutions increase their positions in advance
As mentioned above, the share price of Dongmu shares was launched on August 10, and the third quarterly report was released on October 30, and the stock price rose nearly 2 months in advance.
At the end of the third quarter of 2023, funds and insurance funds held a total of 51.2 million shares of Dongmu shares, a record high since 2019, and these two types of investment institutions increased their positions by more than 28.36 million shares in the third quarter, an increase of more than 120% from the previous quarter.
Obviously, the share price rise of Dongmu shares since August this year is mainly driven by these two types of institutions.
(Market capitalization APP tabulation)
Comparing the positions of institutional investors, it is found that Baoying Fund, GF Fund, Chinese Insurance (insurance products) and other institutions increased their positions against the trend in the third quarter, while Chinese Life (insurance products) remained unchanged.
(Market capitalization APP tabulation)
It is worth noting that "northbound funds" began to buy Dongmu shares in March 2023, showing an overall trend of increasing holdings, holding 6.35 million shares as of December 15, 2023, corresponding to a market value of about 85 million yuan.
(Market capitalization APP tabulation)
At the end of the third quarter of 2023, the number of shareholders dropped to 27,363, a decrease of 4,431 or 14% from the end of the second quarter, and the average number of outstanding shares held by households at the end of the third quarter was 22,526 shares, and the average market value of the corresponding households was about 288,000 yuan.
(Market capitalization APP tabulation)
Judging from the increase in positions of investment institutions in the third quarter, it seems that they are very confident in the performance of Dongmu shares in the second half of the year. As for the company's performance improvement, it is naturally impossible to escape the eyes of the market capitalization index app's stock rating, although it ranks in the middle of the stream, but the improvement is still obvious.
(Market Cap APP)
Disclaimer: This report (article) is based on the public company nature of the listed company, based on the listed company's public company attributes, based on the listed company's public disclosure in accordance with its legal obligations (including but not limited to temporary announcements, periodic reports and official interactive platforms, etc.) as the core basis; The information or opinions expressed in this report (article) do not constitute any investment advice, and Market Value Storm does not assume any responsibility for any actions taken as a result of the use of this report.
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