In 2023, Fengfan shares (601700. SH) handed over a failed cross-border report card, and its Suzhou Jingying Optoelectronics Technology Co., Ltd. (hereinafter referred to as "Jingying Optoelectronics"), which was acquired at a high premium, deducted a non-net profit of 63.21 million yuan, and only completed 23% of its performance commitment.
This means that if it wants to meet the standard, Jingying Optoelectronics needs to cross the "strongest involution era in history" of the photovoltaic industry in 2024 to create 4 times the profit of last year, which is even more difficult for Jingying Optoelectronics, which has been dragged into the quagmire of low-price competition.
In view of the company's previous merger and acquisition of Jingying Optoelectronics, there were many doubts, and the Shanghai Stock Exchange had inquired step by step, and now with the release of this merger and acquisition report card, Fengfan shares have attracted regulatory attention.
According to the annual report disclosure supervision letter released by Fengfan shares a few days ago, in this round of attention, the biggest pressure on Fengfan shares is how to answer a question - that is, seeing that the performance commitment is difficult to meet, where is the confidence of the company to not make provision for the impairment of relevant goodwill?
Titanium media APP noticed that in 2023, the domestic photovoltaic industry will be "wailing all over the field", but Jingying Optoelectronics has successfully won a super "big order" from an overseas customer, and in 2024, only this lock-in volume and price-locked purchase and sales contract that many industry companies are coveted will almost be able to ensure that Jingying Optoelectronics' promised performance is up to standard. However, there are many doubts about the timing of this "big order" from the time of its appearance to the way of cooperation, and whether it can be completed as promised.
Strange overseas "big orders"
In July 2023, Fengfan Co., Ltd. acquired 60% of its shares at a premium of nearly 3 times for 960 million yuan to achieve consolidation.
According to the performance commitment, Jingying Optoelectronics will complete the net profit target of 320 million yuan in 2023 and 2024, and if the completion is less than 85% of the commitment, the equity transferor needs to make up the difference.
In 2023, affected by the low-price competition in the photovoltaic industry, the profit margin of Jingying Optoelectronics will be greatly compressed, and the net profit during the period will be 71.46 million yuan, a year-on-year decrease of 62%. According to the standard of commitment not to make up the performance gap, only 23 per cent of the commitment has been completed.
However, Fengfan Technology is full of confidence in the performance of Jingying Optoelectronics in 2024, and in its reply to the working letter of the Shanghai Stock Exchange, it is predicted that the company's net profit in 2024 will reach 350 million yuan.
Titanium Media APP noticed that in Jingying Optoelectronics' reply, the key to reversing its performance situation lies in the overseas market with high gross profit. Among them, a "stable" purchase and sale contract can almost help the company to fulfill the above performance commitments.
Specifically, two months after the completion of the consolidation in July 2023 (September 2023), Jingying Optoelectronics "coincidentally" met overseas customer SOLARLONGPV-TECH (CAMBODIA) CO., LTD. (hereinafter referred to as "Solarlong"), and Solarlong and Jingying Optoelectronics hit it off in the same month and signed a contract of 1.836GW (240 million pieces) of 182mm cells. The purchase and sale contract with a total price of 154.5912 million US dollars, and became the largest customer of Jingying Optoelectronics.
Coincidentally, the profit from the contract was just enough to cover the performance commitments.
According to the announcement, the contract is divided into two years of supply, of which the revenue from the supply will be 290 million yuan in 2023, and the remaining part is expected to be delivered in 2024, with a scale of about 1.314 billion yuan.
According to the company's 2024 main business revenue forecast data, the cell revenue of Jingying Optoelectronics in 2024 is 1.314 billion yuan, and the corresponding cost is 924 million yuan. Coincidentally, the revenue of this cell is exactly the remaining revenue that Jingying Optoelectronics should supply to Solarlong, and according to this forecast, the gross profit margin of the company's cells can be estimated to be about 29.6%.
If Solarlong's orders are calculated based on the above-mentioned gross profit margin, the contract can contribute a total gross profit of about 475 million yuan in 2023 and 2024, and after deducting the period expenses of 117 million yuan (the period expense ratio of the main products provided by the company in 2023 is 7.32%), the profit will be about 357 million yuan, which almost just covers the target of 320 million yuan of performance commitments.
It is worth noting that behind this order, which seems to have put profits firmly into the pocket of Fengfan shares, it is full of doubts.
Suspicion 1, the purchase and sale contract is a rare long-term order in the current industry to lock the volume and lock the price. Under normal circumstances, in the downturn of the industry, the strategy of locking volume without locking price is more reasonable. Some industry experts told Titanium Media APP that there are almost no large orders in the industry that "lock volume and lock price", especially in the current "volume" environment, but if the module is exported to the United States, its gross profit margin is still very high.
Some may say that this order was signed in September 2023, when the gross profit margin in the overseas market, especially in the United States, was indeed very high. In this regard, the relevant person in charge of a domestic module company also admitted that the contract of "locking volume and locking price" will not appear under normal circumstances, even if there is a similar agreement in the contract, according to the current situation of the industry, the price will actually change on the day of payment.
It is foreseeable that if Solarlong abides by the "volume lock and price lock" contract in 2023 in 2024, it will definitely become the "big benefactor" of Jingying Optoelectronics, and even Fengfan Co., Ltd. and Tangshan state-owned assets.
The second suspicion is that it is disclosed that Solarlong is a solar energy company specializing in solar cell research and development, manufacturing and sales, and Solarlong signed a five-year long-term cooperation agreement with BYD to develop the U.S. market. Solarlong, on the other hand, mainly purchases monocrystalline cells from Jingying Optoelectronics for the processing of photovoltaic modules.
One background to consider is that in 2023, all of Jingying's cell and PV module products will be outsourced, and the monocrystalline cells sold to Solarlong's factory in Cambodia will be self-produced silicon wafers and then entrusted to Tongwei Co., Ltd., Jiangsu Runyang New Energy Technology Co., Ltd. and other cell manufacturers, processed into cells, and then sent to Solarlong to Cambodia in batches by Jingying Optoelectronics' subsidiary.
If Solarlong's PV modules are sold to the US market with a good gross profit margin, then Solarlong can stop the orders of Jingying Optoelectronics first, and directly purchase domestic cell manufacturers with lower prices in a way that does not lock in prices, which seems to be more profitable and more in line with business logic.
The third suspicion is that on May 16 this year (local time in the United States), the White House announced that it would end the import tariff exemption for photovoltaic modules in Southeast Asia, which means that the two-year tariff exemption period granted by the Biden administration to four Southeast Asian countries: Cambodia, Malaysia, Thailand, and Vietnam since June 2022 officially ended on June 6 this year. It is understood that on June 7 this year (local time in the United States), the United States International Trade Commission (USITC) passed the preliminary ruling on the injury of the anti-dumping and anti-subsidy investigation of photovoltaic products in four Southeast Asian countries, and it is expected that on October 1 this year, the preliminary ruling on anti-dumping will be announced.
In this context, it will be difficult for Solarlong's PV modules with a production base in Cambodia to be sold to the US market with high gross margins. At present, there is a big question mark over whether the lock-price order can continue to be executed. If the contract can be completed as promised, the relationship between the two companies can only be explained by "true love".
Company profile of Solarlong on Careers.com
It is worth mentioning that when predicting the future performance of Jingying Optoelectronics, Fengfan also highlighted that the Cambodian factory of Jingying Optoelectronics will be put into operation by the end of 2024, and it is not yet known whether it will change due to the adjustment of the tariff policy of photovoltaic products in the United States on four Southeast Asian countries.
The Shanghai Stock Exchange again questioned cross-border mergers and acquisitions
According to the announcement of the reply to the regulatory work letter of the annual report, the Shanghai Stock Exchange is still focusing on mergers and acquisitions, and even once again questioned whether the company's acquisition decision is prudent, whether the purchase price is reasonable, and whether there is a transfer of interests.
Fengfan shares are mainly engaged in the business of power transmission and transformation line towers, in recent years, the main business growth is weak, in order to seek new business growth points, the company has sought transformation three times, two cross-border military failures, in addition to the precedent of the rejection of the reorganization, and then go back, in 2013, Fengfan shares had a large amount of acquisition of the actual controller of the shareholding company, and finally ended with a large amount of impairment, once made the listed company suffer huge losses.
In view of the above, the regulator's follow-up is not a "trivial matter". Before the merger and acquisition of Jingying Optoelectronics, the operation of Fengfan shares has been dazzling.
In July 2022, Fengfan shares first prepared for reorganization, and in December 2022, the company terminated the restructuring and chose to bypass supervision and acquire 60% of the shares of Jingying Optoelectronics in cash.
What is puzzling is that after the change to a cash acquisition, the company did not require the actual controller of the target company to be the performance commitment party, but only let the general manager of Jingying Optoelectronics as the only performance commitment party. Later, after an inquiry by the Shanghai Stock Exchange, the company quickly signed a supplementary agreement on performance commitments with relevant parties before replying to the inquiry.
In addition, before the company's 2023 general meeting of shareholders passed the acquisition resolution, there were signs of serious overcapacity in the photovoltaic industry, but the company still ignored the acquisition of Jingying Optoelectronics at a premium of nearly 3 times and borrowed 280 million yuan for this.
Regardless of whether the performance commitment can be met, the liquidity of Fengfan shares is now under pressure.
According to the announcement, as of the end of 2023, the company's monetary funds are 1.22 billion yuan, including 827 million yuan in bank deposits, 470 million yuan in restricted monetary funds, and 394 million yuan in other monetary funds, while short-term borrowings are 1.875 billion yuan (385 million yuan in short-term loans and 280 million yuan in long-term loans for the merger and acquisition of Jingying Optoelectronics). Since the merger of Jingying Optoelectronics in July 2023, the company's stock price has fallen by 16.2% in the past year. (This article was first published in Titanium Media APP, author|Zhang Sun Mingshuo)