Got tired? The pricing of the three rounds of acquisitions has dropped sharply one after another, and the acquisition of loss-making Hong Kong stock companies by Yachuang Electronics has been questioned

Interface News Reporter | Guo Jingjing

Three acquisitions, but different valuations? Yachuang Electronics(301099. SZ) plans to acquire Willas-Array (00854.HK), a company listed on the Hong Kong Stock Exchange and the SGX. HK) restructuring was issued an inquiry letter by the Shenzhen Stock Exchange.

Willas-Array has been valued three times a year, and its valuation has dropped sharply one after another, and it has been questioned whether there are other interest arrangements

Jiemian News learned that the acquisition of Yachuang Electronics began as early as March 2023.

On March 30, 2023, Yachuang Electronics announced that its wholly-owned subsidiary, Hong Kong Yachuang Taixin Electronics Co., Ltd. (hereinafter referred to as "Hong Kong Taixin"), intends to acquire 15 million shares of Willah-Array, a Hong Kong-listed company, with its own funds or self-raised funds of HK$150 million, at a purchase price of HK$10 per share, and after the completion of the acquisition, Hong Kong Taixin will hold 17.12% of the shares of Willis, becoming the largest shareholder of Willis.

On March 29, 2023, Willalee closed at HK$2.98 per share. Based on the purchase price of HK$10 per share at that time, the valuation premium given by Yachuang Electronics to Willale was 235.57%.

Yachuang Electronics said at the time that according to Willas-Array's 2022 fiscal year data, Willis' basic earnings per share were about HK$0.96 per share, and net assets per share were about HK$8.98 per share, and the transaction price was reasonable. The company believes that the transaction price is higher than the target company's secondary market share price (the closing price on March 29, 2023 is HK$2.98 per share), mainly because the secondary market liquidity of the target company's shares is extremely low, and the price of the target company's shares in the secondary market has low reference significance for the consideration of this transaction.

However, the purchase price has since fallen sharply. On April 27, 2023, Yachuang Electronics announced that Hong Kong Taixin intends to further acquire 3,614,309 shares of Willaslay for HK $16,264,400 (accounting for about 4.12% of Willam's issued shares), with a purchase price of HK $4.5 per share, and after the completion of this acquisition, Hong Kong Taixin will hold a total of 21.24% of Willas-Array's shares and continue to become the largest shareholder of Willis.

Jiemian News learned that Willas-Array's share price on April 27, 2023 was HK$3.13 per share, and the premium of the acquisition price was 43.77% over the stock price at that time. Yachuang Electronics said that the price was mainly based on the trading price of the target company's stock in the secondary market, and was determined through friendly negotiation between the two parties.

According to the material asset purchase report (draft) disclosed on April 29, 2024, Hong Kong Taixin launched a voluntary conditional cash offer with effective conditions to all shareholders of issued shares of Willas-Array except Hong Kong Taixin, and at the same time issued a cash offer for share options to Wyalmet share option holders and carried out a cancellation transaction.

According to the latest announcement, the tender offer price of Yachuang Electronics to Willas-Array in this transaction is HK$3.3 per share, and the subject of the transaction is all the issued shares of Willah-Met held by Yachuang Taixin, the number of shares in this part is 69,007,740 shares, and the transaction consideration is HK$227,725,500. At the same time, the transaction is subject to a cash offer for share options to be made to the Wiyali share option holders and cancelled. As of the disclosure date of the announcement, the number of unexercised share options held by the Wiyal-Array share option holders was 1,296,500, of which 566,500 share options were exercised at HK$3.91 per share; The remaining 730,000 options were exercised at HK$2.61 per share. Without considering the exercise of the share options, the total consideration for the transaction is HK$228,234,900, assuming that all the options have been exercised and the share offer is accepted in full, the total transaction price is HK$232,004,000.

On April 29, Willas-Array's share price was HK$3.2 per share. Accordingly, the purchase price of Yachuang Electronics in this round is HK$3.3 per share, and the premium to the market price is 3.13%. According to the unaudited interim results announcement announced by Willas-Array, its net assets attributable to the parent company on September 30, 2023 were HK$574.417 million, equivalent to HK$6.56 per share, and the P/B of this transaction was calculated to be 0.5 times.

It can be seen that the pricing of the three rounds of acquisitions of Yachuang Electronics has gradually declined in the past year, and the premium rates are 235.57%, 43.77%, and 3.13% respectively. According to the restructuring announcement of Yachuang Electronics, the "Valuation Analysis Report" mainly adopts the comparative method of listed companies, combined with the privatization premium rate of Hong Kong companies as a reference for rationality analysis, and analyzes the fairness and reasonableness of the pricing of Hong Kong Taixin's acquisition of Willah-Array. In summary, the tender offer price for the acquisition of the shares of Willas-Array by Hong Kong Taixin is fair and reasonable.

In this regard, the Shenzhen Stock Exchange issued a letter of inquiry on May 14, requiring Yachuang Electronics to disclose the pricing basis of this transaction and whether it complies with relevant regulations; Combined with the business type, enterprise scale, profitability, industry competitiveness, enterprise development stage and other aspects of the comparable companies and the enterprises to be acquired in the comparable cases, the selection criteria for determining the relevant comparable companies and comparable transaction cases and the comparability of key comparable indicators are supplemented in the market method valuation; Combined with the background of the previous transactions, the situation of the counterparty, the pricing basis and fairness, etc., the reasons and reasonableness of the transaction difference between the transaction price and the price of the target equity acquired by the company in the previous period are supplemented, and whether the company, its directors, supervisors and senior executives have other interest arrangements with the previous counterparty.

The latest financial report was delayed, and it was asked whether the loss would further expand

According to public information, Willas-Array is a distributor of electronic components, which was listed on the main board of the Singapore Exchange in 2001 and on the main board of the Hong Kong Stock Exchange on December 6, 2013. At present, the brands represented by Willas-Array mainly include the products of more than 20 electronic component manufacturers such as STMicroelectronics (ST), Asahi Kasei Microelectronics, Murata, Sanken Electric, Sony, etc., which is the global agent of STMicroelectronics, and nearly 50% of the purchase value comes from STMicroelectronics.

In accordance with IAS, Willas-Array's total assets at the end of March 2022, the end of March 2023 and the end of September 2023 were HK$1,882 million, HK$2,018 million and HK$1,749 million respectively, the net assets were HK$771 million, HK$690 million and HK$575 million respectively, and the total liabilities were HK$1,111 million, HK$1,327 million and HK$1,174 million respectively. In FY2022, FY2023 and the first half of FY2024, its operating income was HK$3.426 billion, HK$3.135 billion and HK$1.359 billion, respectively, and its net profit was HK$82.192 million, HK$2.702 million and -HK$95.264 million, respectively.

According to the announcement, Willas-Array experienced a sharp decline in performance and even operating losses in fiscal year 2023 and the first half of fiscal year 2024, mainly related to factors such as cyclical fluctuations in the industry, impairment of assets such as inventory, and rising financing interest rates.

Recently, Willaslay announced that it intends to apply to SGX for a deferral of disclosure of the FY2024 results announcement, mainly because "more time is needed to implement the results announcement in respect of certain matters, including the assessment and estimation of expected credit losses on certain trade and other receivables, the provision for inventory impairment testing and the Group's financial projections, as well as the resources and work involved in the proposed voluntary general offer".

In this regard, the exchange requires Yachuang Electronics to disclose whether the influencing factors related to the performance changes of Willisham Array may continue for a long time, the specific impact of the target company's ability to continue operating and the operating ability and core competitiveness of the listed company after the completion of the transaction, and whether the transaction complies with relevant regulations; Combined with the specific reasons for Willalee's postponement of the disclosure of the results announcement, it is supplemented to explain whether there is a risk of further expansion of its losses in fiscal 2024, and the possible impact of the relevant circumstances on the feasibility, necessity, and fairness of pricing of this transaction.

In addition, due to the combined impact of factors such as active stocking and changes in market conditions, the inventory scale of Willas-Array increased year by year in each fiscal year of the reporting period. At the end of each financial year of the reporting period, the carrying value of Willalee's inventory was HK$360 million, HK$586 million and HK$606 million respectively, accounting for 19.15%, 29.05% and 34.64% of the total assets of the current period respectively. In each financial year of the reporting period, Willas-Array's inventory turnover ratios were 9.97, 6.04 and 4.35 respectively (annualized for the first half of FY2024), with inventory turnover rates on a downward trend. The expansion of inventory scale will have a certain impact on the capital turnover of enterprises, and at the same time, it will also face a certain risk of inventory price decline when there are major adverse changes in the market.

On May 14, the exchange required Yachuang Electronics to analyze and explain whether there is a risk of unsalable inventory in combination with the type, application field, inventory age and whether there are corresponding orders or contracts at the end of each fiscal year in the reporting period, and explain whether the provision for inventory decline is sufficient in combination with the method and test process of the provision for inventory decline and the net realizable value.

Is there a risk of tight capital chain?

Yachuang Electronics said that after the completion of this transaction, Willalee may be affected by the fluctuations of the industry cycle in the short term, which will have a certain negative impact on the profitability of listed companies; However, in the long run, with the recovery of the industry and the deepening integration of product lines and customer resources between Willaslay and listed companies, it is expected that this transaction can improve the profitability and sustainable operation ability of listed companies.

Due to the fact that the company has not yet completed the acquisition of a controlling stake in the target company, and in accordance with the requirements of the rules of the securities regulatory authorities of Hong Kong and Singapore on the information disclosure of listed companies, the company is temporarily unable to audit the target company in accordance with the Chinese Accounting Standards for Business Enterprises, so it is not yet possible to analyze the accurate impact of this transaction on the company's financial indicators.

The Company has engaged a difference assurance firm to compare and analyze the differences between the international accounting standards and the Chinese Accounting Standards for Business Enterprises applicable to the financial statements of the target companies in FY2022, FY2023 and the first half of FY2024, and draw investors' attention to the risk of financial statement differences caused by the differences in accounting standards.

The distribution business of Yachuang Electronics mainly acts as an agent for Murata, Seoul Semiconductor, LG, Toshiba, Panasonic and other brand products, the product types mainly include optoelectronic devices, memory chips, passive components and discrete semiconductors, etc., the products are mainly used in automotive electronics, consumer electronics and other fields, and the business area mainly covers Chinese mainland and Hong Kong, China; In addition, the company's automotive analog IC design business mainly produces automotive power management chips, and its downstream customers are mainly customers in the automotive field.

According to financial data, the total assets of Yachuang Electronics at the end of 2022, the end of 2023 and the end of March 2024 were 2.133 billion yuan, 2.681 billion yuan and 2.738 billion yuan respectively, and the net assets attributable to the parent company were 982 million yuan, 1.088 billion yuan and 1.107 billion yuan respectively. From January to March 2022, 2023 and 2024, the company will achieve revenue of 2.203 billion yuan, 2.47 billion yuan and 613 million yuan respectively, and achieve net profit attributable to the parent company of 154 million yuan, 53.2625 million yuan and 26.4752 million yuan. In 2023, the company's profit will decline by 65.45% year-on-year.

As of the end of September 2023, Willas-Array had cash and cash equivalents of HK$58 million, trust receipt loans of HK$456.48 million and bank borrowings of HK$206.43 million. As of the end of March 2024, the book currency funds of Yachuang Electronics were 520.35 million yuan, and the short-term borrowings were 788.4 million yuan; On November 9, 2023, the company disclosed that it intends to use no more than 270 million yuan of idle raised funds to supplement liquidity.

In view of this, the Shenzhen Stock Exchange requires Yachuang Electronics to supplement the disclosure of the specific source of funds for this transaction, and if it involves self-raised funds, explain the financing channel, interest rate, term and other specific circumstances; Combined with the use of funds raised by listed companies, the asset-liability ratio of listed companies and Willas-Array, the scale of monetary funds and future use plans, net profit, cash flow, industry development trends and the difference in account period of procurement and sales, etc., the analysis and explanation of the liquidity needs of listed companies and target companies Willas-Array after the transaction, whether there is a risk of tight capital chain and the impact on business development, the countermeasures to be taken, and fully remind the relevant risks.