Three consecutive years of mergers and acquisitions. Looking at the development history of Dongshan Precision, it can be clearly divided into two stages. First, since its establishment to 2015, it is the company's internal generation period; second, since 2016, the company has en

2025/07/0403:12:40 hotcomm 1992

Three consecutive years of mergers and acquisitions. Looking at the development history of Dongshan Precision, it can be clearly divided into two stages. First, since its establishment to 2015, it is the company's internal generation period; second, since 2016, the company has en - DayDayNews

Author: Wang Xuexue

Source: Stock Market Dynamic Analysis

February 15, Dongshan Precision announced its 2019 performance report. The report shows that in 2019, the company's revenue and net profit attributable to shareholders recorded 23.70 billion yuan and 713 million yuan, respectively, with year-on-year growth rates of 19.55% and -12.15% respectively. As early as the third quarter report of 2019, Dongshan Precision predicted that the company's profit in 2019 will be 1.054 billion yuan to 1.217 billion yuan, a year-on-year increase of 30%-50%. However, on January 21, 2020, the company issued a performance correction announcement, reducing its 2019 profit to RMB 706-730 million, a year-on-year decrease of 10%-13%. The data of the performance report is basically consistent with the correction announcement.

Dongshan Precision stated in the announcement that the company's net profit decline in 2019 was mainly due to the one-time provision of asset impairment losses of 581 million yuan on Storm Group. , but even if this impairment item is not considered, the company's profit in the fourth quarter of 2019 also declined month-on-month, while the company's profit growth rate declined in the third quarter, which shows that the profit in a single quarter is gradually deteriorating.

In addition to performance issues, Dongshang Precision has made aggressive expansions since 2016, accumulating goodwill worth 2.2 billion yuan on the books, accounting for as high as 24.31% of the current net assets. In addition, during the expansion period, the company continued to raise funds, loans, etc., and its debt-to-asset ratio has been high. As of the third quarter of 2019, the debt-to-asset ratio reached 72.25%. Such a high goodwill and debt-to-asset ratio is the sword of Damocles hanging on the head of Dongshan Precision .

has been merged and acquired for three consecutive years. Business territory expansion

Looking at the development history of Dongshan Precision , it can be clearly divided into two stages. One is that since its establishment to 2015, it is the company's internal generation period; the other is that since 2016, the company has entered the external merger and acquisition period and has continuously expanded its business territory.

Dongshan Precision was established in 1998 and was established by the overall change of Dongshan sheet metal. Its main products include precision sheet metal parts and precision casting parts business. In April 2010, the company was listed on the Shenzhen Stock Exchange. It entered the LED packaging business in 2011. In 2014, it began to deploy LCM and TP services, LED and display services, and its business became diversified.

In 2016, Dongshan Precision began to spend huge sums of money to further expand its business. In July 2016, the company completed a 100% equity acquisition of Mflex, the world's fifth largest professional FPC manufacturer, for US$610 million, becoming the leading FPC manufacturer in mainland China, and is currently the only domestic FPC supplier for , Apple, and . In September 2017, the company acquired 70% of the equity of Aifu Electronics for 172 million yuan and laid out ceramic dielectric filters. In March 2018, the company acquired the relevant entities of the PCB manufacturing business under FLEX for US$290 million in cash, collectively known as Multek (Shaoyi) to expand its PCB business.

In short, through these three major acquisitions, Dongshan Precision 's current main business includes four parts: LED and module , touch panel and LCM module, flexible circuit board products, and communication equipment components. Among them, the flexible circuit board business is the largest revenue, accounting for more than 55% of the interim report revenue in 2019. The flexible circuit board business is also the company's fastest growing business at present. Its revenue in the interim report in 2019 doubled compared with the same period in 2018. But it is worth noting that in addition to flexible circuit boards, the company's other three businesses have basically stagnated, and the revenue of touch panel business even declined year-on-year.

profit growth rate has been declining continuously. Multek's performance may be lower than expected

In the past three years, due to the continuous merger of assets into the balance sheet, Dongshan Precision 's performance is indeed excellent. In 2016 and 2017, the company's revenue growth rate was 110.46% and 83.14% respectively, while the net profit growth rate was as high as 354.73% and 264.88%. However, since the company merged its latest acquisition of Multek in August 2018, its performance growth has begun to decline.

Judging from the third quarter report of Dongshan Precision , its performance in the third quarter was not very ideal. In the 2018 annual report, the company's revenue and net profit growth rate had declined compared with the previous reporting period, but it still remained at 28.82% and 54.14%. In the third quarter report of 2019, the company's two data fell to 22.09% and 31.14% respectively. This is still the data under the influence of the low base (unconsolidated Multek) in the first half of 2018. In the third quarter of 2019, revenue in the single quarter increased by only 3.15% year-on-year, and profit growth is also declining.(See Table 1)

2019 full-year performance, Dongshan Precision 's revenue increased by 19.55% in 2019, and the revenue growth rate continued to decline compared with the third quarter report of 2019, and the net profit fell by 12.15% year-on-year. Company's performance announcement stated that the decline in net profit in 2019 was mainly due to the one-time provision of Storm impairment losses of 581 million yuan. After this provision, the book value of accounts receivable, equity investment and other assets related to Storm Group was reduced to zero. Considering that this is a one-time special situation, we will add this loss back to see the profitability of Dongshan Precision in 2019. After adding back, the company's net profit in 2019 was 1.294 billion yuan, that is, the net profit in the fourth quarter was 406 million yuan, while the net profit in the third quarter was 486 million yuan. means that the company's net profit in the fourth quarter of 2019 fell by 16.46% month-on-month.

In the performance report, Dongshan Precision did not explain the reasons for the decline in its operating income growth rate and the quarterly net profit decline month-on-month, but combined with public information, changes in its performance may be related to the following factors.

First of all, in November 2019, some media reported that "Mflex, a subsidiary of Dongshan Precision , supplies Apple 's high-unit price MPI antenna soft boards that cannot be shipped due to broken holes, and the yield rate is relatively low. In order to quickly meet the needs of new products, Apple will transfer about 30 million to Zhending and Taijun." Although, the company said in a subsequent conference call that "the problem of FPC products has been solved, and the orders in November and December are relatively full", the orders may still be affected before the problem is solved.

Secondly, Multek, which was consolidated in August 2018, was a US-funded enterprise, and its core major customers, Amazon, Cisco, , Nokia, , Ericsson, etc., are all European and American companies. According to Huachuang Securities' report, Multek's overseas customers are concentrated, and Sino-US trade frictions have caused the loss of overseas orders. At the same time, in 2019, the construction of overseas 5G was lower than expected, while Multek did not import Huawei and ZTE in 2019, missing the dividend period of domestic 5G construction. The capacity utilization rate of for communications business was insufficient, and its performance was weak. In addition, Multek misjudged the market situation in 2012 and rashly expanded its high-end HDI production capacity of 700,000 square meters per year. Due to the changes in the competitive landscape of the mobile phone market and the upgrade of mobile phone hardware was not as expected, this part of the high-end production capacity has always been in a high-end distribution and low-use situation. In 2019, Multek's high-end HDI production capacity has not been fully released, and insufficient capacity utilization has also dragged down performance.

If Multek still cannot obtain orders from Huawei and ZTE in 2020, the 5G replacement wave is also lower than expected due to the delay in the epidemic. Multek's production capacity may still not be fully utilized, and Multek's performance may be difficult to meet the expectations of the acquisition.

Three consecutive years of mergers and acquisitions. Looking at the development history of Dongshan Precision, it can be clearly divided into two stages. First, since its establishment to 2015, it is the company's internal generation period; second, since 2016, the company has en - DayDayNews

Three consecutive years of mergers and acquisitions. Looking at the development history of Dongshan Precision, it can be clearly divided into two stages. First, since its establishment to 2015, it is the company's internal generation period; second, since 2016, the company has en - DayDayNews

Radical expansion lays hidden dangers

Dongshan Precision has been expanding since 2016. During this period, the equity pledge ratio and asset-liability ratio have been high. As of the third quarter of 2019, the company's debt-to-asset ratio reached 72.25%, and the current ratio has been hovering below 1; recently, the actual controller Yuan Yongfeng pledged another 16.5 million shares, and the cumulative pledge amount reached 55% of his shareholding ratio.

behind high pledge, there must be a high stock price to maintain the company's capital operation. If the stock price falls due to market or company operation reasons in the future, the company may face an equity pledge crisis. In addition, if there is a problem with equity pledge, the company may experience a liquidity crisis under such a high debt ratio and insufficient liquidity.

In addition, after the massive acquisition of Dongshan Precision from 2016 to 2018, accumulating goodwill worth 2.2 billion yuan on the books, accounting for as high as 24.31% of the current net assets. signs indicate that Multek acquired by Dongshan Precision may not meet the performance standards. If the performance does not meet the standards, the company will have to make goodwill impairment on this, and its profits will be further eroded.

Dongshan Precision The radical expansion strategies in recent years have laid many hidden dangers for it, and investors should be careful about this.

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Three consecutive years of mergers and acquisitions. Looking at the development history of Dongshan Precision, it can be clearly divided into two stages. First, since its establishment to 2015, it is the company's internal generation period; second, since 2016, the company has en - DayDayNews

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Three consecutive years of mergers and acquisitions. Looking at the development history of Dongshan Precision, it can be clearly divided into two stages. First, since its establishment to 2015, it is the company's internal generation period; second, since 2016, the company has en - DayDayNews

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