(Yicai Global) Dec. 8 -- Baofeng Group Co. [SHE:300431] has cancelled its plan to introduce strategic investors for its television set manufacturing arm, Shenzhen Baofeng Tongshuai Technology Co. via a capital injection and a share transfer, it said in a statement yesterday. Its decision follows a strategic overview which concluded that the proposed sale would lead to loss of control over the subsidiary.

Baofeng said it will replace the plan with a capital injection of CNY800 million (USD120.8 million) into the subsidiary by Suzhou Dongshan Precision Manufacturing Co. [SHE:002384] and Rudong Xinhao Industrial Investment Fund Management Center, a limited partnership.

Baofeng announced last August that it would invite strategic investors for Baofeng Tongshuai through capital injection and a share sale. However, it later concluded that the move would constitute a major sale of assets, causing it to lose control over the subsidiary, given the size of the proposed financing.

Baofeng Group yesterday decided to shelve the original reorganization plan. The reason for the decision, the firm explained, is that both investors had agreed on the deal and signed a capital injection contract with Baofeng Group and Baofeng Tongshuai, and the transaction method and value do not warrant a share transfer by the group. Instead, Dongshan Precision Manufacturing and Rudong Xinhao will inject CNY800 million into Baofeng Tongshuai.

After the deal, Baofeng Group will own a 21.58 percent stake in the subsidiary, and 31.97 percent voting rights according to a concerted action agreement, so the injection of capital will not change the actual controller of Baofeng Tongshuai.

'Baofeng TV' is the core business at Baofeng Tongshuai, per the group's semi-annual report. As the first new strategic business introduced after the 'Global DT Pan-Entertainment Strategy' unveiled in May 2015, Baofeng TV registered an operating income of around CNY561 million in the first half, with a negative net profit of CNY129 million.

After the new funding round, Baofeng TV's target for next year is to maintain its number one position on the artificial intelligence (AI) TV market, and remain as the largest home projector brand by market share, it said. In addition, it will strive to swing single-user profit into the black, thus laying a solid foundation for delivering positive overall profit in 2019.

"Baofeng TV now has the strongest team in China's internet TV industry. They make the best TVs and services, and this is the most important reason behind our decision to invest in Baofeng TV," said Yuan Yonggang, chairman of Dongshan Precision Manufacturing, one of the newly introduced strategic investors.

Rudong Xinhao Industrial Investment Fund Management Center is a high-tech industry development fund sponsored by the government of Rudong county, Nantong, East China's Jiangsu province. "After the strategic investment, Baofeng TV will take the lead in creating an AI TV industry base in Rudong. The project will boost the development of upstream and downstream AI TV businesses across the industry chain," noted Zhai Jianhua, party committee secretary of Rudong development zone.