Visionox continues to lose money; shareholder Tibet Zhihe sells shares, which may lead to a change of control

Recently, Visionox's controlling shareholder Tibet Zhihe plans to transfer 160 million shares of the company it holds to the counterparty (a state-owned company), accounting for approximately 11.70% of the company's total shares. The counterparty is planning to sign a "Concerted Action Agreement" with the company's second largest shareholder, Kunshan Economic and Technological Development Zone Collective Asset Management Co., Ltd. Visionox believes that the above matters may lead to a change in the company's control.

The history of the relationship between the two companies

The relationship between Tibet Zhihe and Visionox started in 2015.

In November 2015, Tibet Zhihe, which was indirectly wholly owned by Wang Wenxue, invested RMB 422 million to acquire 10.85% of Hei Niu Food’s shares held by Lin Xiuhao, and obtained the voting rights of another 18.97% of the shares held by Lin Xiuhao, thereby gaining controlling rights in Hei Niu Food.

In June 2016, Lin Xiuhao transferred the remaining 18.97% of the shares to Tibet Zhihe for 1.304 billion yuan (corresponding to a transfer market value of 6.874 billion yuan). After the transaction was completed, Tibet Zhihe directly held 29.82% of Hei Niu Food's shares and became the company's controlling shareholder. Wang Wenxue was the actual controller of the company. Tibet Zhihe's cumulative cost of acquiring 29.82% of Hei Niu Food's shares was 1.726 billion yuan (corresponding to a comprehensive transfer market value of 5.788 billion yuan).

After taking control of Hei Niu Food, Tibet Zhihe launched a series of capital operations. The first was to clean up food assets; the second was to inject new assets, which were AMOLED assets with Visionox as the main body.

In June 2016, Hei Niu Foods divested its food and beverage business and sold it to Hei Niu Capital. At the same time, Hei Niu Foods established two new subsidiaries, Yungu Gu'an and Bazhou Yungu. In response to the inquiry letter from the exchange, Hei Niu Foods claimed that its subsidiaries Yungu Gu'an and Bazhou Yungu mainly provide planning consulting, project development, project management, and operation and maintenance management services in the information field for financial enterprises. Specifically, the development direction of these two subsidiaries is IDC business.

But in September 2016, after Hei Niu Food announced a 18 billion yuan non-public offering plan, everyone realized that Hei Niu Food's transformation direction was OLED panel business. The above two subsidiaries are mainly responsible for the construction of OLED fundraising projects and will cooperate with the well-known domestic OLED company Guoxian Optoelectronics.

However, in May 2017, Hei Niu Foods released a second revision of its non-public offering plan, revising the fundraising amount from 18 billion to 15 billion, and Kunshan Guochuang no longer subscribed to Hei Niu Foods shares. The final fundraising amount of Hei Niu Foods was 15 billion.

On January 18, 2018, Hei Niu Food and Guoxian Optoelectronics jointly established Jiangsu Visionox with shareholders other than the China Development Fund, with a joint venture amount of 5.797 billion yuan and a registered capital of 6.797 billion yuan. Hei Niu Food contributed 3.2 billion yuan, while Kunshan Guochuang, Yangcheng Lake Cultural and Commercial Tourism, and Kunshan Chuangkong contributed a total of 2.597 billion yuan with their 59.59%, 21.35%, and 5.45% equity interests in Guoxian Optoelectronics respectively.

After a series of capital operations, Hei Niu Food was officially renamed Visionox in February 2018. At that time, Visionox's core assets had not been fully injected. At the end of 2018, the AMOLED core asset Guoxian Optoelectronics was officially fully injected, and the PMOLED assets were divested.

It is worth mentioning that through two agreement transfers and one private placement, the proportion of Visionox shares held by Tibet Zhihe has also increased. According to Tianyancha, as of March 1, 2021, Tibet Zhihe held a total of 412 million shares of Visionox, accounting for 30.13% of the shares.

However, as of January 30, Tibet Zhihe had pledged a total of 248 million shares, accounting for 59.70% of its shares and 18.16% of Visionox's total share capital.

Continuous operating losses

As is known in the industry, OLED is regarded as the next generation display technology. Previously, this field has been monopolized by foreign companies such as Samsung and LGD. However, as domestic panel companies increase their layout, they are gradually breaking through in the OLED field.

According to incomplete statistics from Jiwei.com, there are more than 20 OLED production lines built or under construction in China. BOE A, Shenzhen Tianma A, Huaxing Optoelectronics, Everdisplay Optoelectronics, Truly International, Royole, Visionox and other companies have joined the OLED competition. According to research firm Omdia, by 2022, the market share of Chinese manufacturers in the AMOLED industry will increase from 5% in 2017 to 26% in 2022.

Even with such a market prospect, Visionox's development is not stable. At present, it has built three AMOLED panel production lines: the 5.5-generation AMOLED panel production line in Kunshan, Jiangsu, with a designed capacity of 15K/month; the 6th-generation AMOLED panel production line in Gu'an, Hebei, with a designed capacity of 30K/month; and the 6th-generation AMOLED panel production line in Hefei, Anhui, with a designed capacity of 30K/month. Among them, the first two AMOLED production lines have been put into production, and the capacity is in the process of ramping up, while the latter production line is still under construction.

An industry insider pointed out that the capital demand of the OLED industry is very large. If the company's subsequent investment and R&D cannot keep up, it is likely to lose in the subsequent explosive competition. Although Visionox is an early domestic OLED panel manufacturer, as industry giants such as BOE, TCL Huaxing, and Shenzhen Tianma accelerate their layout of the OLED industry, the market competition is becoming increasingly fierce, and scale advantages will quickly become the key to manufacturers' profitability.

Relatively speaking, Visionox is at a disadvantage in market competition, which can be reflected in its operating performance in recent years. From 2017 to 2019, Visionox achieved operating income of 32 million yuan, 1.778 billion yuan, and 2.69 billion yuan, and the corresponding net profit was 15 million yuan, 35 million yuan, and 64 million yuan. It can be seen that Visionox's performance shows a steady growth trend.

Despite this, compared with BOE, TCL Huaxing and Shenzhen Tianma, which have revenues of tens of billions and net profits of several billion, Visionox's revenue scale is significantly smaller and its profitability is significantly weaker.

What is more noteworthy is that Visionox has mainly relied on government subsidies to improve its performance in recent years. From 2017 to 2019 and from January to September 2020, Visionox received government subsidies of 523 million yuan, 2.031 billion yuan, 1.056 billion yuan, and 1.033 billion yuan, respectively.

In addition, Visionox also benefits from transferring product technology patents and selling assets. In November 2020, Visionox holding companies Guoxian Optoelectronics, Yungu Gu'an and Kunshan Industrial Technology Research Institute plan to sign a "Patent Transfer Contract" with Chengdu Chenxian to transfer some of its Micro LED-related patent technologies to Chengdu Chenxian for 300 million yuan. Subsequently, Visionox transferred related equipment used in the research and development of Micro LED display technology to Chengdu Chenxian for 112 million yuan.

After deducting non-recurring gains and losses such as government subsidies, Visionox's non-net profit was -384 million yuan, -1.214 billion yuan, and -940 million yuan in 2017-2019, respectively.

Regarding the continued loss of net profit after deducting non-recurring items, Visionox said: "From 2017 to 2019, the company's Gu'an production line was under construction and had no operating income or operating profit contribution; the company's operating income from 2018 to 2019 mainly came from the Kunshan production line. The operating and management expenses incurred to support the construction and daily operation of the Gu'an production line, the R&D investment for mass production and technology reserves of the production line, and the financing-related costs have increased the company's operating losses, which are the main reasons for the company's continuous losses in net profit after deducting non-recurring gains and losses in recent years."

In 2020, Visionox's profitability has not been significantly improved. Visionox expects to achieve operating income of 3.2 billion yuan to 3.5 billion yuan in 2020, and net profit attributable to shareholders of listed companies of 141 million yuan to 210 million yuan, of which non-recurring gains and losses will contribute 943 million yuan to the net profit attributable to shareholders of listed companies. After deducting non-recurring gains and losses, Visionox's net profit will be a loss of 733 million yuan to 802 million yuan.

Industry insiders pointed out that "Visionox's continued losses are the main reason for the controlling shareholder to sell its shares". Since 2015, Wang Wenxue, chairman and actual controller of China Fortune Land Development, has acquired Visionox (formerly Hei Niu Food), Yulong Shares and ST Hongsheng through his subsidiaries by acquiring shares. However, the above-mentioned acquired companies failed to make a profit and were eventually sold. According to the share price, ST Hongsheng was transferred to Tibet Deheng at a "break-even" price; while the equity transfers of Yulong Shares and Visionox were sold at a loss.