Robot listing situation: Double transmission added "A split A", Tuobang failed midway

In March, two robot A-share listed companies sparked heated discussions in the market.

On one hand, the gear leader Shuanghuan Transmission is accelerating the "spin-off" of its precision reducer business to the Science and Technology Innovation Board; on the other hand, the industrial control "hidden champion" Tuobang Co., Ltd. agreed to terminate the spin-off of its subsidiary Yankong Automation to the Shenzhen Stock Exchange Science and Technology Innovation Board.

Considering that Kodak Manufacturing and Han's Laser Technology successively terminated their subsidiaries' spin-off and listing plans in January this year, the "A-split A" craze seems to have cooled down.

Why did Shuanghuan go against the trend in the cold wind? Did Tuobang, which had been preparing for two years but ended in vain, take advantage of the situation?

Shuanghuan Transmission's hot "potential stock" for spin-off

As early as September 2023, Shuanghuan Transmission announced plans to spin off Huandong Technology for listing, but did not disclose more specific information. Six months later, the spin-off was officially updated.

On March 4, Shuanghuan Transmission (002472.SZ) issued an announcement that it plans to spin off its subsidiary Zhejiang Huandong Robot Joint Technology Co., Ltd. (hereinafter referred to as "Huandong Technology") for listing on the Shanghai Stock Exchange Science and Technology Innovation Board.

After the completion of this split, the equity structure of Shuanghuan Transmission will not change, and it will still maintain its control over Huandong Technology with a shareholding ratio of 61.2886%.

As one of the world's largest professional box gear suppliers and a well-known domestic supplier of engineering machinery transmission components, Shuanghuan Transmission has long been in the leading position in the field of gear transmission, its main business. Since 2020, the company has transferred the assets and personnel related to the robot joint high-precision reducer business to the newly established wholly-owned subsidiary Huandong Technology to focus on the development of this business.

According to the announcement, Huandong Technology is mainly engaged in the research and development, design, production and sales of high-precision reducers for robot joints. Its main product is RV reducers, which are widely used in high-end manufacturing fields such as industrial robots and industrial automation .

Shuanghuan Transmission has four main considerations for this "splitting" listing:

First, high-precision reducers are in line with the national industrial policy orientation; second, the process of domestic substitution is accelerating, and Huandong Technology is expected to seize development opportunities; third, it is conducive to the listed company and Huandong Technology to focus on their main businesses and enhance their independence; fourth, it is conducive to Huandong Technology to broaden its financing channels and enhance its capital strength.

As a representative of advanced manufacturing, industrial robots are an important tool for developing new productivity, and the industry has entered a "golden period". Against this background, many industrial robot companies have entered the capital market to seek more development momentum.

For a long time, the prospect of reducer as the "heart" of robots has been highly favored by investors.

Up to now, Huandong Technology has completed one round of strategic financing of RMB 290 million and one round of equity financing. Its shareholder lineup is even more luxurious, including not only well-known VCs such as Hillhouse Capital and Temasek, but also a number of "national teams" such as China Investment Corporation and National Manufacturing Transformation and Upgrading Fund to support it.

In recent years, driven by policy dividends and market demand, Huandong Technology's market share has continued to increase thanks to key technological breakthroughs and accelerated import substitution.

According to the report, from 2021 to 2022, Huandong Technology's revenue increased by 219% and 85% year-on-year, and its net profit increased by 225% and 148% year-on-year, respectively. In the first three quarters of 2023, Huandong Technology's revenue and net profit reached 247 million yuan and 58.5 million yuan, respectively, both achieving double-digit growth year-on-year.

Huandong's "solo flight" will help both the parent and subsidiary companies to give full play to their respective advantages, focus on cultivating niche markets, and achieve better and faster development.

For investors, although the split will result in two listed companies with different development logics and valuations, which can be reasonably allocated according to their own investment preferences, the robotics business, as the hottest "chip", has been split off, and the strength of the subsidiary will be difficult to fully reflect in the equity value of the parent company, resulting in "dilution" of value.

The company's stock price has continued to fall since the announcement of the spin-off listing on September 26, and once hit the limit down. As of press time, Shuangchuan Huandong's stock price on March 22 was 24.12 yuan, a decrease of -1.99%, with a turnover of 445 million yuan on that day and a current total market value of 20.572 billion yuan, a decrease of nearly 10 yuan from the stock price in September.

In addition to the stock price volatility, there is still uncertainty as to whether Huandong Technology can pass the review smoothly under the current strict review of the Science and Technology Innovation Board IPO.

Since the end of 2022, the China Securities Regulatory Commission has maintained a "controlled rhythm" state. After the "827" new policy, many companies' listing applications have been rejected or shelved. Since the beginning of this year, more than 60 companies in the Shanghai and Shenzhen Stock Exchanges have terminated their IPO plans, so some companies have chosen to rush to the Hong Kong Stock Exchange with lower requirements. UBTECH, the "first stock of humanoid robots", also switched to the Hong Kong Stock Exchange after its IPO failed in the Shenzhen Stock Exchange.

Tuobang shares suspends its spin-off, is performance pressure the main reason?

For Tuobang Co., Ltd., its plan for spin-off listing was aborted halfway.

Looking back, in March 2022, the company announced plans to spin off its robot motor and drive business subsidiary Yankong Automation to be listed on the GEM. At that time, Tuobang Co., Ltd. held a 71.54% stake in Yankong Automation, and the two parties had strong ties in assets, personnel, technology, etc.

Tuobang shares revealed that the original intention of spinning off Yankong Automation was to optimize resource allocation and professionalize operations to enhance overall competitiveness. Once Yankong Automation is listed independently, it can improve the corporate governance structure, increase new product research and development and market expansion, and is expected to achieve leapfrog development.

However, nearly two years later, Tuobang Co., Ltd. suddenly announced on March 11 that it would terminate its plan to spin off and list Yankong Automation. The company explained that it needed to increase investment in R&D, sales, and supply chain to enhance its competitiveness in the field of industrial automation due to overall strategic considerations and the need to increase long-term investment value.

In addition, changes in the capital market environment and the operating progress of Yankong Automation itself are also important reasons for Tuobang to suspend the spin-off. It is worth noting that Yankong Automation's revenue and net profit in 2022 and the first three quarters of 2023 have declined to varying degrees.

In the current environment where the China Securities Regulatory Commission continues to conduct strict audits, net profit is a "hard indicator" for companies to go public. The recent poor performance of Yankong Automation has undoubtedly increased the obstacles to its spin-off listing. It can be foreseen that if it continues to insist on the spin-off, the time cost and financing cost of the listing will be greatly increased, and it may also face the risk of abortion.

However, it is worth noting that according to the announcement of Topband, after the termination of the spin-off, the company will start the acquisition plan of the minority shareholders of Yankong Automation. This may send a positive signal that Topband will still focus on the industrial automation business and has only temporarily given up the path of spin-off and listing.

Last words

The so-called spin-off listing refers to the act of a listed company listing part of its business or assets in the form of a subsidiary it directly or indirectly controls for the first time on the securities market or achieving a reorganization listing.

The practice of "A-share split" in my country's capital market has gone through a relatively long fermentation process, and the first successful case did not appear until 2021. It is not difficult to see that under the registration system supervision concept of "loose entry and strict exit", spin-off listing is not a smooth road.

But in the long run, spin-off listing can optimize the business structure, strategic layout and resource allocation of listed companies, which is conducive to improving the overall quality and long-term investment value of listed companies, and high-quality "parent and subsidiary companies" are also more conducive to achieving mutual benefit and win-win results.

As the registration system reform of my country's capital market continues to deepen, the regulations and operational practices of spin-off listings will become more mature. Technology-innovative companies will be the first to benefit from the policy dividends of spin-off listings, and are expected to become the main force of "A-to-A" in the future. Frontier fields such as robots and artificial intelligence are expected to become the focus of spin-off listings.