Revenue declined but net profit increased by 355% year-on-year. Is Lingyi Intelligent Manufacturing's performance turnaround sustainable?

After a series of setbacks in the past year, Lingyi Intelligent Manufacturing has been in constant dispute with its former shell company Jiangfen Magnetic Materials, but its operating performance seems to have improved significantly.

On the evening of August 25, Lingyi Intelligent Manufacturing released its 2019 semi-annual report showing that the company achieved revenue of 959,625.36 million yuan in the first half of the year, a decrease of 2.25% from the same period last year; total profit of 125,494.01 million yuan, an increase of 354.96% from the same period last year; net profit attributable to the parent company's owners of 111,430.91 million yuan, an increase of 291.72% from the same period last year.

Lingyi Intelligent Manufacturing disclosed that the year-on-year decline in the company's revenue was related to the actual business conducted. In the same period last year, Lingyi Intelligent Manufacturing's bulk trade revenue was 900 million yuan, but this business was not conducted in this reporting period; while the company's net profit increased significantly year-on-year, which was largely related to the performance compensation of its subsidiaries.

In the first half of this year, Lingyi Intelligent Manufacturing's net profit attributable to the parent company's owners after deducting non-recurring gains and losses was 837.2036 million yuan, an increase of 71.49% over the same period last year, of which its subsidiary Oriental Bright Color contributed 395.2294 million yuan.

As Lingyi Intelligent Manufacturing's subsidiary Dongfang Liangcai failed to fulfill its performance commitment, its original shareholders should compensate the listed company for its performance, of which the performance compensation stocks were measured at the closing price of the company's stocks, and the change was included in the profit and loss from changes in fair value. Affected by this factor, the amount included in the profit and loss from changes in fair value in this period was RMB 395,229,400, which was included in the financial statements of Lingyi Intelligent Manufacturing for the first half of the year.

Lingyi Intelligent Manufacturing said that the company's operating conditions and management adjustments continued to improve, enabling the operating income and profits of the precision functional and structural parts business and display and touch module business in the company's main manufacturing industry to maintain good growth compared with the same period last year. Among them, the revenue growth rate of precision functional and structural parts was 18.62%, and the operating gross profit margin increased by 6.25%. The revenue of display and touch modules increased by 5.25%, and the operating gross profit margin increased by 2.17%.

However, in the first half of this year, Lingyi Intelligent Manufacturing decided to terminate the implementation of the "Metal Precision Structural Parts Construction Project" and use the remaining funds raised from the project to permanently supplement working capital. The implementing entity of the project was Oriental Liangcai, which failed to fulfill its performance commitments.

Lingyi Intelligent Manufacturing said that with the further promotion of wireless charging technology and the approaching 5G commercial era, affected by the demand for mobile phone signal transmission quality, the material of smart phone precision structural parts such as mobile phone back panels has shifted from metal to non-metallic materials such as plastic and glass, and the overall market demand for metal precision structural parts has decreased; due to large market fluctuations, sluggish product demand and low product profits in metal precision structural parts construction projects, the company is seeking product transformation and did not continue to invest the raised funds in 2018 and this reporting period.

Although the market demand for precision structural parts is affected by the technological iteration of smartphones, it does not mean that there is no room for the development of precision structural parts in the mobile phone market. Once the R&D investment in the newly raised investment project of the subsidiary Oriental Bright Color is terminated, it means that the subsidiary will have little room for development in the future. Perhaps Lingyi Intelligent Manufacturing has other plans for the precision structural parts business that is still growing.

In addition, judging from the revenue proportion of a certain sector, Lingyi Intelligent Manufacturing still has a high proportion of overseas major customers, which to some extent shows that the company is highly dependent on its customers. In the first half of this year, Lingyi Technology achieved sales revenue of 573,946.45 million yuan, an increase of 25.15% over the same period last year; and realized a total profit of 103,434.03 million yuan, an increase of 63.03% over the same period last year. Lingyi Technology's major customers include Apple.

At present, in addition to Lingyi Technology's precision parts business, Lingyi Intelligent Manufacturing also includes the material business of the former Jiangfen Magnetic Materials, the precision structural parts business of Oriental Liangcai, and the touch module business of Dijing Optoelectronics. The company is facing the integration and fusion of different business segments. Especially in view of the differences in business types and customer structures of each business segment, its integration is not easy and fusion is even more difficult.

How to quickly achieve business synergy and industrial integration under the current unfavorable industrial chain environment is the biggest problem currently facing Lingyi Intelligent Manufacturing. Once the integration is unfavorable, the "aftermath" of industrial chain mergers and acquisitions will be difficult to avoid.