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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 has recently experienced a dramatic shift in performance, with the controlling stake now set to change hands.
After more than three months ofåœç‰Œ (suspension), Jinlong Electromechanical announced on Tuesday that the current controlling shareholder had conducted due diligence on the company, signaling an upcoming change in ownership. The GEM-listed company, which has been trading for over eight years, is now at a crucial turning point. This year, the high-growth Apple concept stock saw a sudden drop in performance, going from earning 300 million yuan in the first three quarters of last year to nearly 200 million yuan for the full year. Such a sharp decline was shocking for investors.
Over the past two years, the company’s performance has significantly declined, causing its stock price to fall by 60%. Now, it finds itself in a difficult position as the ownership is about to be transferred. The transfer comes after the controlling shareholder, Jinlong Group, pledged a large percentage of its shares, raising concerns about the company's financial stability.
On November 27 last year, Jinlong Electromechanical suddenly suspended trading due to major issues, and the suspension lasted for over three months. During this time, the company faced uncertainty as the controlling shareholder prepared for a potential transfer of equity. According to the announcement, Jinlong Group is planning to transfer its shares, which may lead to a change in control. The potential buyer has already started due diligence, and both parties are actively discussing the transaction plan.
Jinlong Group, the controlling shareholder, has pledged almost all of its shares. As of December 13 last year, the group held 318 million shares, or 39.57% of the total shares, with nearly 296 million of those shares pledged, representing 93.09% of the shares held and 36.84% of the total capital. The high level of pledging indicates financial pressure, and it remains unclear whether the ownership transfer is directly related to this situation.
Since November last year, Jinlong Group has made over 20 pledges involving various brokers, banks, and asset management companies. For example, on November 23, it pledged 60.5 million shares to BOC Assets, and on November 24, it pledged 1.7 million shares to Essence Securities, all for financing purposes. Frequent pledge activities raise concerns about the company's liquidity and the risks involved 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 one of the few optical chip developers in China. However, the acquisition was controversial due to the company’s poor financial performance and recent losses. The company admitted that Zhongke Guangxin is still in the growth stage and has not yet generated profits due to heavy R&D investments. Despite this, the company believes in its long-term potential.
However, the performance of Zhongke Guangxin raised doubts, leading the company to announce the termination of its plan to acquire assets through share issuance. It will, however, consider purchasing shares in cash in the future.
As the controlling stake is about to change hands, several executives have also resigned. On October 27 last year, Wang Binsheng, the securities representative, submitted his resignation. On January 23 this year, Zhang Yuze, the deputy general manager, also resigned. On February 27, Dong Juan and Huang Juan, another deputy general manager, followed suit.
Jinlong Electromechanical was listed on the GEM in December 2009, making it one of the earliest listed companies on the board. The company primarily focuses on linear motor products. In 2014, it began supplying these motors to Apple, becoming a well-known Apple concept stock.
Under the Apple brand, the company enjoyed significant popularity. Its stock rose by over 80% in 2013 and 2014, and by 236% in 2015, making it a top-performing stock. However, the company's performance has since declined, leading to a 60% drop in its stock price. Today, its value is less than 30% of its historical peak.
The performance turnaround came in 2016, when the company's net profit fell sharply by 58.3%. Before 2016, the company had impressive results, with revenue increasing by 175.1% in 2014 and net profit surging by 450.8%. In 2015, both revenue and net profit doubled, with net profit rising by 180.6%.
However, in the first three quarters of last year, the company reported a net profit of 307 million yuan, a 117% increase year-on-year. But by the end of February this year, the company released a report showing a loss of 192 million yuan in just one quarter, with a total loss of nearly 500 million yuan in that period. The news sent shockwaves through the market.
The company explained the performance drop mainly due to goodwill impairment from wholly-owned subsidiaries, a decrease in gross margin for its linear motor products, provisions for long-term equity investment impairments, and inventory depreciation. The previous performance surge was driven by aggressive mergers and acquisitions, such as the acquisitions of Bo Yi Optoelectronics and Jia Ai Motor in 2015, which led to a significant increase in revenue and net profit.
However, the expected profits from these acquisitions were not realized, resulting in massive goodwill impairment charges. This hidden risk from mergers and acquisitions directly impacted the company's performance. With the controlling stake about to change hands, investors hope the new major shareholders can restore the company to its former glory.
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