In a strategic move aimed at expanding its business,Mijie Technology Co.,Ltd.(300319.SZ) recently unveiled a draft report on its proposed merger and acquisition (M&A) activities,signaling a definitive transition from discussion to action in its growth strategy.This plan encompasses purchasing a 100% stake in Huizhou Ankeyuan Magnetic Devices Co.,Ltd.(hereafter referred to as "Ankeyuan") and a 20% minority stake in Chengdu Jinzhi Chuan Electronics Co.,Ltd.(referred to as "Jinzhi Chuan").The funding for this acquisition will come through a combination of issuing shares and cash payments,along with raising a supplementary capital of up to 101 million yuan.This supplementary fund is earmarked for paying cash considerations,covering intermediary costs,bolstering Ankeyuan's liquidity,and servicing existing debts.
Mijie Technology first made headlines regarding the restructuring initiative on June 12,2023.Fast-forward over a year later,and while the acquisition is now at a pivotal stage,skepticism remains persistent in the market.Critics are particularly concerned with Mijie’s decision to procure two companies that arguably do not deliver impressive financial performances.Ankeyuan has consistently recorded losses,while Jinzhi Chuan,despite showing profit,grapples with high inventory levels and significant reliance on major clients,prompting apprehensions about its long-term sustainability.
The high premium associated with this acquisition is a point of contention.As one of China's veteran manufacturers and suppliers of electronic components,Mijie Technology operates primarily in the research,design,production,and sales of electronic components and LCM display modules.However,the company’s financial disclosures reveal a lackluster performance,with revenues dipping in both 2022 and 2023,and profits failing to impress.
In light of this performance history,it is unsurprising that Mijie Technology's valuation of 180 million yuan for these acquisitions has raised eyebrows.According to the report,the assessed values of Ankeyuan and Jinzhi Chuan stood at 118 million yuan and nearly 355 million yuan respectively,calculated as of September 30,2023.These valuations represent a marked uplift from the parent company's equity stake,coming in at approximately 83.34 million yuan and 323.51 million yuan.The resulting appreciation reflects a value increase of approximately 35 million yuan for Ankeyuan and 32 million yuan for Jinzhi Chuan,with respective appreciation rates of 41.59% and 9.80%.
Adding further intrigue to the situation,just before Mijie announced its restructuring plan,Ankeyuan’s controlling shareholder,Zhang Guoting,transferred the land use rights and building assets of his wholly-owned enterprise into Ankeyuan via a capital increase.This maneuver led to a notable asset appreciation for Ankeyuan by over 51 million yuan in assets by the end of September 2023,signaling a possible tactic to enhance Ankeyuan’s net asset value artificially.
Mijie Technology's board contends that this acquisition will facilitate an upward expansion in the production supply chain,thus reducing reliance on external suppliers for alloy magnetic powder cores,crucial components in high-frequency energy conversion devices.In their perspective,the move is designed to mitigate costs and bolster operational efficiency.However,a critical aspect that cannot be overlooked is that the transaction lacks performance guarantees from various parties; aside from limited commitments made by one shareholder regarding goodwill impairment compensations,other partners have not provided performance assurances.Should the acquisitions not meet performance expectations,
Mijie would face the lack of a safety net.
The M&A backdrop,however,is more complex than just pricing and potential gains.For Ankeyuan,significant issues loom large.Mijie Technology aims to acquire 100% of Ankeyuan from seven shareholders for a valuation that many industry watchers feel is inflated.Ankeyuan,operating since November 2011,specializes in developing,producing,and selling alloy magnetic powder cores derived from iron silicon aluminum and iron nickel,among others.These products serve as core components in Mijie’s offerings,adding an intricate layer to the rationale behind the acquisition.
The company's recent histories showcase a disturbing trend; income for Ankeyuan plummeted from nearly 90 million yuan in 2022 to 77 million in 2023,with losses deepening over the same timeframe.Moreover,the company's production efficiency was underwhelming due to low utilization rates,ranging from approximately 36% to 48% over the last few fiscal periods,suggesting significant operational underperformance.
Alarmingly,Ankeyuan's reported liabilities are concerning,showcasing debt ratios hovering around 68% in 2022,compared with industry peers who generally maintain lower liabilities.Such metrics are compounded by a gross margin that underperforms compared to industry standards,suggesting operational vulnerabilities could lead to heightened risks if Mijie proceeds with acquisition plans without careful scrutiny.
In stark contrast,the acquisition of Jinzhi Chuan may seem comparatively safer,given that it already functions as a key subsidiary of Mijie Technology.The revenue it generated over recent years maintains a semblance of profitability,with figures reported at approximately 54 million yuan in 2022,slightly declining thereafter.Nonetheless,Jinzhi Chuan is not without its precariousness; it relies heavily on a restricted client base for income,with over 85% of its sales driven by top clients,posing a substantial risk should any of these relationships falter.Furthermore,the inventory turnover ratios present a worrying trend,with sizable portions of total assets tied up as stock,echoing concerns over potential write-downs or resultant impacts on overall financial health.
The unfolding narrative of Mijie Technology lays bare the complexities inherent in corporate acquisitions,particularly in an environment laden with skepticism and market scrutiny.As the company forges ahead,stakeholders will be keeping a close watch—not just on the ambitions of Mijie in terms of market expansion and cost management,but on how it addresses the financial and operational hurdles inherent in these targets.Whether Mijie Technology secures a foothold in the industry’s competitive landscape or grapples with volatility in its newly acquired portfolios remains to be seen as more details unfold in line with market reactions and financial disclosures.