Dehao Runda wants to achieve "protection" by turning off the LED chip business

Posted by Pansy Chan on July 10th, 2019

On July 10th, Guangdong Dehao Runda Electric Co., Ltd. (hereinafter referred to as “Dehao Runda” and “Company”) issued an announcement on “Promoting Management to Promote the Closing of LED Chip Factory”, said that due to LED chips The business continued to lose money, the company agreed to close the LED chip factory, and authorized management to promote implementation.

LED chip overcapacity, prices continue to fall

Since 2009, Dehao Runda has begun to lay out LED chip business, and has invested heavily in LED chips through mergers and acquisitions, non-public offering of shares, self-owned funds, and bank loans. After years of development, the company has formed industrial bases in Dalian, Wuhu and Ningbo.

In the past two years, the market environment of the domestic LED chip industry has undergone tremendous changes. On the one hand, major competitors in the industry have purchased a large number of machines to expand production capacity; new capacity has been continuously released, resulting in continued overcapacity of LED chips, further promoting The price of LED chips continued to fall, and the situation in the third quarter of 2018 accelerated. On the other hand, with the continuation of Sino-US trade disputes, the macroeconomic environment has become uncertain in 2018, and the LED downstream application side has been regulated and restricted by real estate, and the consumer markets such as automobiles, smart phones and televisions have become saturated. The demand for LED chips has been greatly reduced, and the industry is weak.

Against the backdrop of overcapacity, slower downstream demand for chips, and uncertainties in friction, the competition in the LED chip industry in 2019 is even more severe, and the growth rate is slowing down, and the industry turning point is coming.

In the face of the huge adverse changes in the demand for LED chips and the supply end, Dehao Runda's LED chip products have advantages such as advanced technical indicators and leading edge in flip chip market, but when the financing is limited, the proposed new capacity investment is required. Point behind the competitors, as well as the scale of production capacity, customer groups, new market development and many other aspects far behind the main competitors, resulting in higher unit cost of the company's LED chip products, LED chip market share is low, scale effect is not obvious The business of the business is not ideal.

In 2018, Dehao Runda also suspended the investment in the LED chip project. According to the 2018 annual report of Dehao Runda, due to the unfavorable factors such as the falling price of LED chips and the slowdown of downstream demand, the actual production capacity of the two projects of the company has met the current order needs of the company, and the profitability of the investment projects is not good. In the state of loss, continued investment is not in the interests of the company and shareholders. In order to reduce the company's operational risks and financial costs, the use of raised funds for investment projects is terminated.

Turn off the LED chip business

According to the latest annual report in 2018, Dehao Runda has suffered losses for two consecutive years, and the company's stock has been treated as a “delisting risk warning”. If there is another loss in 2019, the company will face the risk of delisting, so this year's primary goal of Dehao Runda is to remove the shell.

In 2018, Dehao Runda had a net loss of 580 million yuan, which did not include the impairment provision related to LED chips. According to the 2018 annual report of Dehao Runda, as of December 31, 2018, the original value of fixed assets of Dehao Runda LED chip business was 4.45 billion yuan, the accumulated depreciation balance was 1.22 billion yuan, and the balance of impairment provision was 98.42 million yuan. The third-party professional evaluation agency's evaluation of the intangible assets related to the LED chip business of Dehao Runda - proprietary technology and fixed assets that cannot be used normally shows that the gross profit margin of Dehao Runda LED chip business in the second half of 2018 is negative. The capacity utilization rate has dropped. The above situation indicates that the economic performance of fixed assets related to the LED chip business has been lower or lower than expected, and there are signs of impairment.

According to the current price of LED chips and market demand, the impairment seems to be inevitable. If in 2019, Dehao Runda's impairment of related LED chip assets is included in the company's financial statements in 2019, then the company will lose money again in 2019 on the premise that there is no significant sharp change in other businesses. Therefore, for Dehao Runda, which is imminent in shell protection, it is imperative to divest bad and loss-making assets.

To this end, Dehao Runda management conducted research and analysis on the LED chip business industry prospects, market conditions, price trends, etc., redeployed the LED chip business in the fourth quarter of the business direction, while taking but not limited to compression LED chip business Measures such as capacity, inventory clearance, and staff reduction.

The management of the company has been carefully considered, and the situation based on the overcapacity of the LED chip industry is difficult to alleviate in the short term. Coupled with the impact of Sino-US trade disputes, the macro environment is still in a tight situation. The downstream market of LED chips is also expected to be Affected by factors such as the impact of the company's financing ability and the continued operation of various businesses, it is predicted that even if the LED chip price rebounds in the short term to improve short-term performance, if the long-term financing ability does not recover, there is no follow-up capital investment, LED chip. It is difficult for the business to maintain normal operations. Therefore, the company's management plans in December 2018 to close the LED chip factory.

Based on the business situation in 2019, the management of the company made a recommendation to the board of directors of the company through comprehensive evaluation: agree and authorize the management to implement the chip manufacturing business as soon as possible by means of “shutdown and transfer” as planned. Completed in the third quarter.

Dehao Runda said that the closure of the LED chip factory will result in potential losses in employee liquidation expenses, inventory and asset disposal in the short term. However, in the long run, it will help reduce the company's overall operating performance pressure, ease the company's long-term investment in LED chips, ensure that the company has more resources to develop other business segments, and help to re-integrate the company's overall operations into the normal track.