On the evening of January 14, Cixing shares (SZ300307, share price of 9.88 yuan, market value of 7.847 billion yuan) announced that the company is planning to issue shares and pay cash to purchase assets and raise matching funds, and the stock has been suspended since the market opened on January 15. The target of this transaction is Wuhan Minsheng New Technology Co., Ltd. (hereinafter referred to as Wuhan Minsheng), and Cixing intends to acquire a controlling stake in the target company.

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Before the disclosure of the news of the planned restructuring, on January 13 and 14, the share price of Cixing shares showed a high increase, and the deviation of the closing price increase for two consecutive trading days reached 32.64%. On January 15, a person from the securities department of Cixing said in a telephone interview with a reporter from the "Daily Economic News" that after the company's self-inspection, there was no violation of fair information disclosure, and the company's share price rise may be related to the good rise of the sector and the broader market.

The reporter noted that Cixing Co., Ltd. had announced its investment in Wuhan Minsheng as early as the end of 2021, and since August 2022, Li Lijun, director and deputy general manager of the company, has begun to serve as a director and chairman of the board of supervisors in Wuhan Minsheng.

Cixing is now the second largest shareholder

On January 13th and 14th, the share price of Cixing shares rose by 20.03% and 15.29% respectively, of which there was a daily limit on the 13th. According to the opening price of 7.14 yuan on the 13th and the closing price of 9.88 yuan on the 14th, the company's stock price has risen by about 38.38% in the two trading days.

On the evening of the 14th, the company issued a stock price change announcement, saying that in addition to the above-mentioned matters that are being planned to issue shares to purchase assets, the company currently has no matters that should be disclosed but have not been disclosed.

A person from the securities department of Cixing shares also said that after the company's verification, during the period of stock price changes, there was no trading of the company's shares by controlling shareholders, actual controllers, directors, supervisors and senior executives of listed companies and relevant insiders with insider information.

According to the announcement of Cixing shares, the company plans to acquire a controlling stake in Wuhan Minsheng, and simultaneously raise matching funds, and the preliminary counterparty is all or part of the shareholders, including Sun Chengliang (the actual controller of the target company) and 5 partnerships. The company has signed an agreement of intent with the above-mentioned counterparty to preliminarily reach an intention to purchase assets.

Tianyancha information shows that at present, Cixing is the second largest shareholder of Wuhan Minsheng, with a shareholding ratio of 9.40%. In December 2021, Cixing Co., Ltd. announced that it planned to increase its capital in Wuhan Minsheng with 200 million yuan; In August 2022, after Cixing completed the subscription of the capital contribution, Wuhan Minsheng made industrial and commercial changes, and the company's shareholding ratio was 10.44%; By the time of the 2024 interim report, the company's shareholding had been diluted to 9.77%.

Cixing Co., Ltd. is mainly engaged in the research and development, production and sales of knitting machinery, while Wuhan Minsheng's main products are RF front-end filters, which are mainly used in mobile communication, navigation, WiFi and other functions in smart phones and terminals, and the main business of the two is in different fields.

Previously, the Shenzhen Stock Exchange had issued a letter of concern, requiring the company to explain the reasons and necessity of implementing the transaction. Cixing replied that in view of the large number of traditional models in the current computer knitting machinery market, it takes a certain amount of time for new models to be updated, and the market cyclicality is more obvious, so the company is considering exploring and cultivating new business growth points at the same time; The company hopes that this investment can help the company expand its investment horizons in industries such as filters and RF front-ends, and will lay a good foundation for the company's layout of new MEMS device applications in the future with the further extension of microelectromechanical system (MEMS) technology application scenarios.

Wuhan Minsheng has suffered "consecutive losses" in recent years

The reporter noted that since August 2022, Li Lijun, director and deputy general manager of Cixing Co., Ltd., has successively served as the director of Wuhan Minsheng and the chairman of the board of supervisors. The above-mentioned person from the securities department said that it is normal for the company to send senior executives to Wuhan Minsheng as a shareholder, but Wuhan Minsheng is mainly managed by its own team.

Cixing did not disclose the performance of Wuhan Minsheng in the announcement of the planned restructuring. However, after checking the announcement and regular report of Cixing shares, the reporter learned that Wuhan Minsheng was established in January 2019, and since 2020, Wuhan Minsheng has been in continuous losses.

In December 2021, Cixing Co., Ltd. disclosed that in 2020 and 2021 1~11 months, Wuhan Minsheng's operating income was 0, and the net profit was 829,600 yuan and 38.8485 million yuan respectively. In 2022, 2023 and the first half of 2024, Wuhan Minsheng's operating income will be 57,800 yuan, 162,000 yuan and 6.7836 million yuan respectively, and the net profit will be 158 million yuan, 197 million yuan and 131 million yuan respectively, with a total loss of 486 million yuan in two and a half years.

The above-mentioned person from the securities department said that judging from the 2024 statements, Wuhan Minsheng's revenue and profit are not relatively large, and the scale of revenue is not large, because its production line is completed and the time for mass production is short.

For the specific situation of Wuhan Minsheng production line, the article published by the WeChat public account "Wuhan Minsheng" in December 2024 shows that on December 26, the main body of its high-end RF filter production line project in Wuhan Optics Valley was capped, and the 8-inch RF filter production line jointly built by the company and Beijing Sai Microelectronics has achieved mass production in July 2023, with a monthly production capacity of 2,000 wafers. At the same time, the company started the construction of its own production line with a monthly production capacity of 10,000 wafers, with a total investment of 3 billion yuan, and will achieve mass production in 2026.

Although Wuhan Minsheng continued to lose money, its valuation has almost doubled in more than two years. According to the announcement issued by Cixing in December 2021, Wuhan Minsheng's pre-investment valuation is 1.4 billion yuan, and the valuation is based on the commitments of the target company and its major shareholders/founders. According to media reports in September 2024, Wuhan Minsheng received a new round of financing, with a valuation of nearly 3 billion yuan at that time.

The RF filter market is highly competitive

According to the disclosure of Cixing shares, Wuhan Minsheng's main business is radio frequency filters as its fist products, covering piezoelectric microphones and piezoelectric ultrasonic sensor chips.

The reporter noted that at present, the main listed companies in the field of A-share RF filters include Weijie Chuangxin (SH688153), Zhuosheng Micro (SZ300782), Huizhiwei (SH688512), etc. However, in the first three quarters of 2024, many companies suffered losses or declined net profit attributable to their parent companies.

For example, Huizhiwei, which will land on the Science and Technology Innovation Board in May 2023, will lose 409 million yuan and 298 million yuan in net profit attributable to the parent company in 2023 and the first three quarters of 2024 respectively; After the net profit attributable to the parent company in 2023 increased by 4.95% year-on-year, the net profit attributable to the parent company in the first three quarters of 2024 decreased by 48.05% year-on-year; The net profit attributable to the parent company in 2023 increased by 110.31% year-on-year, while in the first three quarters of 2024, it decreased by 156.60% year-on-year, and the net profit loss attributable to the parent company was 32.122 million yuan.

Weijie Chuangxin said that in the third quarter of 2024, due to the market competition environment, the company's product prices were under pressure, and the shipments of some products declined, resulting in a year-on-year decline of 41.61% in operating income and a year-on-year decrease of 175.22% in net profit attributable to shareholders of listed companies.

Zhuosheng Micro said in its 2023 annual report that the domestic RF front-end industry has benefited from the national policy environment, supply chain diversification dividends and capital boom, and a large number of new entrants have poured into the industry in recent years. With the development of the industry towards centralization, local RF front-end companies have gradually improved their product layout through product upgrading and iteration and deepening and broadening of product lines, which has intensified the fierce competition in the market.

Therefore, the development and trend of the RF front-end industry conforms to the changes in communication technology and is closely related to the development of smartphones and other new application fields.

According to statistics from IDC, the global smartphone market is facing challenges due to macroeconomic factors and the continued impact of inventory accumulation at the beginning of the year. Total smartphone shipments for the full year in 2023 fell to 1.17 billion units, down 3.2% year-on-year, hitting the lowest point in nearly 10 years.

However, IDC data on January 14 this year shows that in 2024, smartphone shipments will reach 1.24 billion units, a year-on-year increase of 6.4%. After two consecutive years of decline, the global smartphone market is recovering.

For the market prospect of radio frequency filters, the above-mentioned securities department replied to reporters that the company plans to acquire a controlling stake in Wuhan Minsheng, and still has expectations for its future development, and the specific situation needs to wait for the company's follow-up issuance plan.

Translation Cover image credit: Visual China