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A quarter of a loss of 500 million Jinlong electromechanical turned into a rotten apple
Apple's concept stock, Jinlong Electromechanical, once soared to great heights, doubling its performance for two consecutive years and seeing its share price triple. However, the company's fortunes have taken a sharp turn. Its performance has deteriorated, and the controlling stake is now set to change hands.
After more than three months ofåœç‰Œ (suspension), Jinlong Electromechanical announced on Tuesday that the current controlling party has conducted due diligence on the company. This marks a significant moment for the GEM-listed firm, which has been in operation for over eight years, as it prepares for a potential ownership shift. The high-growth Apple concept stock, which had shown strong growth at the start of the year, suddenly experienced a dramatic performance drop. From earning 300 million yuan in the first three quarters of last year, the company's annual profit fell to nearly 200 million yuan — an unexpected and shocking decline.
With declining performance over the past two years, the stock price has plummeted by 60%, leaving the company in a difficult position. Now, it's facing the possibility of being taken over by new investors.
The transfer of the controlling stake comes after a period of heavy share pledging by the company’s major shareholder, Jinlong Group. On November 27 last year, Jinlong Electromechanical suspended trading due to major issues, and the suspension has lasted over three months.
According to recent announcements, Jinlong Group is planning to transfer its equity in the company, potentially leading to a change in control. The intended transferee has already started due diligence, and both parties are actively discussing the transaction plan. However, the company's shares remain suspended.
Notably, Jinlong Group has pledged almost all of its shares. As of December 13 last year, the group held 318 million shares, accounting for 39.57% of the total shares, with nearly 296 million shares pledged — representing 93.09% of the shares it holds. This equates to 36.84% of the company’s total capital.
Since November last year, the group has made over 20 pledges involving various brokers, banks, and asset management companies. For example, on November 23, it pledged 605.363 million shares to BOC Assets, and on November 24, it pledged 1.715 million shares to Essence Securities. These moves were primarily for financing purposes.
Frequent share pledging indicates that the group is under financial pressure, though it remains unclear if this is directly linked to the planned transfer of control. A high pledge ratio increases the risk, especially if the stock price drops after trading resumes.
In January this year, the company announced plans to acquire a 51% stake in Zhongke Guangxin, a Chinese semiconductor laser manufacturer. Founded in 2011, Zhongke Guangxin is the only optical chip developer and manufacturer in China. However, the company admitted that the acquisition was controversial due to the target's poor performance and recent losses. Despite this, the company stated that the acquisition was still in the early stages of development and that the long-term prospects were promising.
Later, the company decided to terminate the plan to purchase assets through share issuance, citing unsatisfactory conditions, but it left the door open for a cash-based acquisition in the future.
Meanwhile, key executives have also begun to step down. In October last year, the company received a resignation from Wang Binsheng, the securities representative. In January this year, Deputy General Manager Zhang Yuze submitted his resignation, followed by Dong Juan and Huang Juan, another deputy general manager, in February.
Jinlong Electromechanical was listed on the GEM in December 2009 and was one of the earliest listed companies on the board. The company mainly produces linear motor products. In 2014, it began supplying linear motors to Apple, becoming a well-known Apple concept stock.
Under the Apple brand, the company's stock gained popularity. In 2013 and 2014, the stock rose by more than 80%, and in 2015, it surged by 236%, becoming a top-performing stock. However, in recent years, the company's performance has declined, and its stock price has dropped by 60%, now trading at less than 30% of its historical peak.
The performance turning point came in 2016. Before that, the company showed impressive results. In 2014, revenue increased by 175.1% year-on-year, and net profit jumped by 450.8%. In 2015, both revenue and net profit doubled, with net profit rising by 180.6%. But in 2016, the company's performance began to decline, with net profit falling sharply by 58.3%.
In the first three quarters of last year, the company's performance improved, achieving a net profit of 307 million yuan, up 117% year-on-year. However, the performance report released at the end of February this year revealed a shocking reversal: the company recorded a loss of 192 million yuan in just one quarter, totaling nearly 500 million yuan in losses. The news sent shockwaves through the market.
The performance report indicated that the company's total operating income last year reached 3.91 billion yuan, a 15.94% increase year-on-year, but the net profit turned into a loss of 192 million yuan. The company attributed the drop to goodwill impairment from wholly-owned subsidiaries, a decrease in gross margin for linear motor products, provisions for long-term equity investment impairments, and inventory depreciation.
The company's previous performance surge was largely driven by aggressive mergers and acquisitions. In 2015, revenue jumped from 1.226 billion yuan to 3.033 billion yuan, and net profit surged by 180%, reflecting the benefits of acquiring Bo Yi Optoelectronics and Jia Ai Motor.
However, as the saying goes, "Cheng Yi Xiao He defeated Xiao He," the massive goodwill provision last year came from previously acquired companies that failed to meet their profit targets. As a result, the company had to make significant impairment provisions.
In recent years, Jinlong Electromechanical focused on expanding its profits through acquisitions, achieving rapid growth. However, the hidden risks associated with these deals, particularly the goodwill impairment, ultimately led to performance losses.
Now, as the company's controlling stake is about to change hands, investors are hoping that the new major shareholders will revitalize the company and restore its former glory.