Sapphire supplier Allred goes public via backdoor listing for 4.12 billion yuan

Southwest Pharmaceutical, which has been suspended for several months, finally announced its restructuring plan on the evening of August 11. The announcement stated that the restructuring plan includes major asset replacement, issuance of shares to purchase assets, share transfer and non-public issuance of shares to raise supporting funds. After the reorganization is completed, 100% of the equity of Harbin Orade Optoelectronics Technology Co., Ltd. (hereinafter referred to as "Orade"), that is, the sapphire assets with an estimated value of approximately 4.12 billion yuan, will be injected into Southwest Pharmaceutical and a backdoor listing will be achieved. The actual controller of the company will be changed from Taiji Group Co., Ltd. to Zuo Hongbo and Chu Shuxia. The company's shares have resumed trading since August 12. The announcement stated that the estimated value of the 100% equity of Orred that Southwest Pharmaceutical intends to inject in this asset reorganization is approximately 4.12 billion yuan, and the estimated value of the assets to be purchased is approximately 427 million yuan (which is Southwest Pharmaceutical’s total assessed assets and liabilities as of April 30, 2014, the base date, after deducting the accumulated undivided assets as of that date). The remaining part after the cash equivalent of approximately 113 million yuan corresponding to the profit distribution), the difference of approximately 3.693 billion yuan will be purchased by Southwest Pharmaceutical at a price of 7.42 yuan per share, through a non-public offering of approximately 498 million shares to 33 natural person shareholders including Zuo Hongbo and 45 shareholders from 12 institutions including Harbin Institute of Technology Industrial Corporation. After the completion of the above-mentioned asset replacement, Zuo Hongbo used all the acquired assets and 413 million yuan in cash as consideration to acquire 29.99% of the equity of Southwest Pharmaceutical held by Taiji Group, or 87.0149 million shares. At the same time, in order to improve the performance of this reorganization and enhance the sustainable operating capabilities of the new company, Southwest Pharmaceutical also plans to non-publicly issue no more than 139 million shares to no more than ten specific investors at the same price, raising approximately 1.03 billion yuan, which will be used for Oridian's "large-size sapphire material industry base expansion project" and the "sapphire window base project" of its wholly-owned subsidiary Qiuguan Optoelectronics. Data shows that after years of development, Ored has become a sapphire single crystal furnace equipment provider and a sapphire crystal material supplier that has begun to take shape in diversified development. The company has made significant progress in the industrialization technology of large-size sapphire single crystals, and has obtained 4 invention patents and 18 utility model patents, including "Cold-shoulder micro-pulling preparation method for sapphire single crystals above 300mm", "Rapid annealing method for growing large-size sapphire single crystals by cold-shoulder micro-pulling method", and a number of invention patents and utility model patents are pending. The successful application of these technologies has enabled it to reach the international leading level in the field of production of large-size sapphire single crystals. At present, Ored can mass-produce sapphire crystal ingots and products of 2 inches, 4 inches, 6 inches and above. It is one of the few companies in the world with large-scale production capacity of sapphire crystal ingots of 4 inches and above. Before 2011, the sapphire crystal materials produced by Oride were mainly used as LED substrate materials. In 2011, its products began to enter the field of consumer electronics applications, supplying sapphire materials to mobile phone component manufacturers Lens Technology and Bourne Optics. Orred stated that it plans to achieve a backdoor listing through this transaction, make full use of the financing function of the capital market, seize the opportunity of the explosive growth of the current sapphire industry, rapidly develop sapphire material processing and downstream application products, and enhance and consolidate its dominant position in the industry and market. Financial data shows that in 2011, 2012, 2013 and January-April 2014, Ored's operating income was 114 million yuan, 215 million yuan, 388 million yuan and 112 million yuan respectively, and its net profits were 40.9076 million yuan, 17.5019 million yuan, 75.3601 million yuan and 21.3141 million yuan respectively. The company's sales revenue in the first four months of this year has increased significantly year-on-year. As the demand in the downstream market continues to rise, the sales revenue for the whole year will increase even more significantly. Southwest Pharmaceutical's net profit in 2013 was approximately 32.01 million yuan. After the completion of this reorganization, the main business of Southwest Pharmaceutical will be transformed from western medicine preparations to a supplier of sapphire crystal materials and single crystal furnace equipment. It is understood that in recent years, with the policy support of governments around the world, the sapphire industry has entered a vigorous development cycle, and the development trends in the fields of LED lighting and consumer electronics will drive the rapid growth of sapphire demand. Therefore, market participants expect that after the restructuring is completed, the listed company's sustained profitability will be greatly improved and its future development prospects will be optimistic. At the same time, the announcement shows the risks of this business. After the completion of this transaction, the listed company will directly hold 100% of the shares of Orred. Ored is mainly engaged in the research and development, production and sales of sapphire crystal materials and single crystal furnace equipment. Due to the increasing quality and cost requirements for LED sapphire substrates, there is currently an increasing demand for 4-inch sapphire crystal ingots in the market. At the same time, the continued expansion of sapphire applications in consumer electronics has had a huge impact on the sapphire market structure. However, the premise for sapphire to be widely used is that sapphire has a low enough price that can be accepted by the market. This requires sapphire companies to continuously carry out technological upgrades and effective cost control. If the future development trend of sapphire cannot meet the requirements of downstream industries, or new alternative materials emerge, it will have an adverse impact on the sapphire material and single crystal furnace equipment markets.