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Date
2024-06-10
Nord Shares: Industry Shift & Consecutive Mergers - Boon or Bane?
Since 2024, mergers and acquisitions (M&A) have been heating up, further enhancing the activity level of various industries. Numerous listed companies on the A-share market have disclosed plans for M&A and restructuring, among which New Energy Lithium Battery Material supplier, Node New Material Co., Ltd. (hereinafter referred to as "Node Co." or "the Company", 600110.SH), is one of them.
On October 12th, Node Co. announced its intention to purchase a 37.5% stake in Hubei Node Lithium Battery Material Co., Ltd. (hereinafter referred to as "Hubei Node") through the issuance of shares.
In April of this year, Node Co. also announced its plan to acquire a 90.2% stake in Yun Wealth Futures Co., Ltd. (hereinafter referred to as "Yun Wealth Futures"). However, due to suspected violations of information disclosure laws and regulations, Node Co. has been continuously warned and investigated by regulatory authorities, resulting in a temporary suspension of the transaction.
Node Co.'s consecutive planning of significant asset acquisitions may be related to performance pressure. The semi-annual report shows that Node Co.'s revenue increased by 10% year-on-year in the first half of this year, while the net profit recorded a loss of 159 million yuan, marking the first loss in the semi-annual report over the past four years. Whether Node Co. can enhance its profitability through mergers and acquisitions remains to be seen.
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Cross-industry M&A is under investigation.
Public information shows that Node Co. has a long history, established in August 1989, and is one of the pioneering enterprises in China for self-developed and self-produced electrolytic copper foil. In October 1997, Node Co. was listed on the main board of the Shanghai Stock Exchange.
Looking at the revenue composition in recent years, copper foil products account for nearly 90% of Node Co.'s main business income, while the revenue from wire and cable accounts for nearly 10%, and the revenue from trade, power generation, and other income accounts for a very low percentage, less than 2%. Node Co., established for more than 30 years, has been deeply involved in the electrolytic copper foil industry and only planned cross-industry M&A in 2024.
On April 9th this year, Node Co. announced its plan to acquire a 90.2% stake in Yun Wealth Futures held by Shanghai Xunuo Asset Management Co., Ltd., with a transaction price of 455 million yuan. According to the appraisal report, the book value of all shareholders of Yun Wealth Futures is 344 million yuan, and the appraised value is 504 million yuan, with a premium rate of 46%.
Financial data shows that Node Co. recorded a loss of 122 million yuan in 2019 and a profit of 27.31 million yuan in 2023, with a total profit of 667 million yuan over the past five years (from 2019 to 2023). Node Co.'s cross-industry move to acquire a futures company with nearly 70% of its total profits over the past five years has attracted widespread attention.
It is worth noting that the profitability of Yun Wealth Futures itself is questionable. According to the announcement, Yun Wealth Futures' revenue was 106 million yuan in 2022 and 509 million yuan in the first 11 months of 2023, with net profits of -55.74 million yuan and -36.79 million yuan, respectively, resulting in a combined loss of over 90 million yuan in the past two years.Soon, Nord Share's cross-border acquisition of a loss-making futures company was questioned by the regulatory authorities. On April 10th, the Shanghai Stock Exchange sent a letter asking Nord Share to explain the reasons for the continuous losses of Yun Wealth Futures and whether it is an outstanding enterprise in the futures industry; to clarify whether the cross-border acquisition of a continuously loss-making futures company is conducive to the company's industrial chain integration and supply chain optimization, and whether it is beneficial to enhance the profitability and sustainable operation ability of the listed company.
In addition to being questioned, Nord Share has also been successively warned and investigated due to this transaction.
On April 30th, the Jilin Securities Regulatory Bureau took measures to issue a warning letter to Nord Share and its chairman Chen Lizhi, vice chairman Xu Songqing, secretary Wang Handuo, and financial director Wang Liwen. On May 31st, the Shanghai Stock Exchange issued a regulatory warning to Nord Share and Chen Lizhi, Xu Songqing, Wang Handuo, and Wang Liwen. On September 6th, Nord Share announced that the company and Chen Lizhi, Xu Songqing, Wang Handuo received the "Case Initiation Notification" from the China Securities Regulatory Commission (CSRC), and the CSRC decided to file a case due to suspected illegal and irregular information disclosure.
Nord Share stated that the reason for being investigated by the CSRC is that the company did not disclose the signing of the transaction framework agreement in a timely manner when acquiring 90.2% of the equity of Yun Wealth Futures in the early stage; in addition, the net profit of Yun Wealth Futures (audited) accounts for 15.82% of the company's (audited) net profit, exceeding the 15% red line and reaching the standard for filing a case.
Some market observers pointed out that the raw materials for Nord Share's production of copper foil products include copper and sulfuric acid, among which copper materials are the main part of the production cost, and copper price fluctuations will have a significant impact on its production cost. Acquiring a futures company can provide hedging services for Nord Share's upstream raw material suppliers to avoid the risk of raw material price fluctuations being transmitted to production costs.
However, before being investigated by the CSRC, Nord Share has temporarily suspended this acquisition. Nord Share stated that due to the current transaction timing not being mature, and the need to obtain approval from relevant regulatory authorities and qualification approval from shareholders for this acquisition, there is a great deal of uncertainty in the final delivery of this transaction.
Integrating Holding Companies Again
Shortly after the acquisition of Yun Wealth Futures was suspended, Nord Share launched another acquisition plan.
According to the announcement, on May 14th, the board of directors of Nord Share reviewed and passed the "Proposal on the Company's Compliance with the Conditions for Issuing Shares to Purchase Assets and Raising Supporting Funds and Related Transactions." The "Proposal" shows that it plans to purchase 37.5% of Hubei Nord's equity held by Hubei Nord Industrial Investment Partnership (Limited Partnership) and Hubei Changjiang Nord Industrial Investment Management Partnership (Limited Partnership) through the issuance of shares.
In the "Progress Announcement on Major Asset Restructuring" released by Nord Share on October 12th, it was stated that as of the date of this announcement, the due diligence, audit, and evaluation related to this transaction have not been completed. The company will strictly fulfill the information disclosure obligations in a timely manner according to the progress of this transaction in accordance with relevant laws, regulations, and normative documents. Investors are advised to pay attention to the company's subsequent announcements and be aware of investment risks.Equity penetration reveals that Nord Co., Ltd. has already held 62.5% of the shares in Hubei Nord (with the relevant equity held by its wholly-owned subsidiary), making it the controlling shareholder of Hubei Nord. After the acquisition is completed, Hubei Nord will become a wholly-owned company of Nord Co., Ltd. Nord Co., Ltd. stated that this move is aimed at strengthening the company's control over Hubei Nord, enhancing the core competitiveness of the listed company, and increasing the company's regional influence, which is beneficial for achieving the industrial layout of the listed company.
Some analysts pointed out that Nord Co., Ltd.'s consecutive mergers and integrations may be related to performance pressure. The semi-annual report shows that Nord Co., Ltd.'s net profits for the first half of 2021 and 2022 both exceeded 200 million yuan, but it dropped to 85.37 million yuan in the first half of 2023, and even incurred a loss of 159 million yuan in the first half of this year. This is also the first time since the first half of 2020 when Nord Co., Ltd. incurred a loss of 17.69 million yuan that the semi-annual report has shown a loss again.
Looking at the net profit after deducting non-recurring gains and losses, the weak profitability of Nord Co., Ltd. is more intuitive. According to the annual report, Nord Co., Ltd.'s net profit after deducting non-recurring gains and losses for 2021 and 2022 were both over 300 million yuan, but it incurred a loss of 134 million yuan in 2023, and a loss of 195 million yuan in the first half of this year.
From the perspective of the industry trend, the current situation for the entire electrolytic copper foil industry is not very optimistic.
According to Wind information, among the listed companies in the same industry as Nord Co., Ltd., Defu Technology, Zhongyi Technology, Jiayuan Technology, and Tongguan Copper Foil all incurred losses in profit in the first half of this year, with losses of 105 million yuan, 52.38 million yuan, 105 million yuan, and 58.78 million yuan, respectively.
However, in the first half of 2023, the above five listed companies, including Nord Co., Ltd., were all profitable. From being fully profitable to fully loss-making, it seems that the electrolytic copper foil industry has "changed the weather", and where is the root of the industry's widespread losses?
According to the survey and statistics of the Electronic Copper Foil Materials Branch of the China Electronic Materials Industry Association (CCFA), it is expected that 26 electrolytic copper foil projects will be fully or partially completed and put into production in 2024, which will increase the total production capacity of electrolytic copper foil to 2.203 million tons. At the same time, the capacity utilization rate of the electrolytic copper foil industry has dropped to 56%.
Based on this, some relevant people have said that China's electrolytic copper foil production capacity is already in a state of overcapacity, leading to long-term low processing fees, and the profitability of related listed companies may continue to be weak. Under this situation, whether Nord Co., Ltd. can maintain profitability throughout 2024 and even in the following years, investors can pay attention.