The 106 million raised investment project will change, Hengtai Lighting plans to set up a production base in Vietnam

How to find the "optimal solution" for enterprise growth in order to obtain long-term competitive advantages and sustainable development is an eternal theme before enterprises. Recently, Hengtai Lighting decided to change the use of some of the funds raised for this theme.

Changes in the annual output of 5 million sets of LED lighting projects

On November 17, 2022, Hengtai Lighting, "the first LED lighting stock on the Beijing Stock Exchange", was officially listed. The company is positioned in the industrial lighting and commercial lighting markets. In the field of industrial lighting, it mainly provides LED high ceiling lights (industrial and mining lamps), and in the field of commercial lighting, it mainly provides LED line lights and LED panel lights.

On the day of listing, Hengtai Lighting’s issue price was 6.28 yuan per share, raising a total of 139 million yuan and a net fund-raising amount of 124 million. The raised funds will be received on November 11, 2022.

Hengtai Lighting originally planned to invest the raised funds into projects with an annual output of 5 million sets of LED lamps, intelligent production equipment technical transformation projects, and R&D center upgrade projects. As of January 13, 2023, the use of raised funds is as follows:

On January 17, 2023, Hengtai Lighting announced that the company held the ninth meeting of the second board of supervisors on January 13, 2023, and reviewed and approved the "Proposal on Changing the Use of Raised Funds (Changes in the Implementation Subject, Implementation Location and Implementation Method of the Annual Production of 5 Million Sets of LED Lamps Project)". According to the content of the proposal, the specific circumstances of Hengtai Lighting changing the use of raised funds are as follows:

Hengtai Lighting's analysis pointed out that after changing the use of raised funds, the "annual output of 5 million sets of LED lamps project" can quickly form production capacity, and is expected to be put into operation in the second half of 2023, 1-2 years earlier than the "newly built" implementation method of the original raised investment project. It can effectively solve the company's current problem of insufficient production capacity, help quickly increase the company's business scale and profitability, thereby creating greater value for shareholders.

With a high proportion of export business, Hengtai Lighting strengthens its global layout

The underlying reason for Hengtai Lighting’s decision is inseparable from its market layout.

Looking at Hengtai Lighting’s performance in recent years, affected by external environments such as the epidemic and Sino-US trade, Hengtai Lighting’s revenue and net profit declined from 2018 to 2020; in 2021, due to the relaxation of overseas epidemic policies, Hengtai Lighting’s performance recovered.

Coming to 2022, according to its performance forecast, Hengtai Lighting is expected to achieve a net profit of 118 million to 124 million yuan in 2022, a year-on-year increase of 47.78% to 55.29%, which shows that performance continues to improve.

It should be pointed out that Hengtai Lighting’s products are mainly sold overseas. According to Hengtai Lighting's prospectus, from 2019 to the first half of 2022, Hengtai Lighting's overseas sales revenue accounted for more than 95%. Overseas customers are located in the United States, Canada, South Korea, etc. Among them, the United States is the company's main sales region, and the sales ratio remains at about 85%.

This also means that the trends of Hengtai Lighting's revenue and net profit also reflect the development of the company's export business to a certain extent. According to Hengtai Lighting's performance from 2018 to 2021, it can be seen that in 2021, when revenue increased significantly, the company's net profit did not grow simultaneously. Therefore, reducing costs in overseas markets has important strategic significance for the development of Hengtai Lighting. This change in the implementation entity, implementation location and implementation method of the fundraising project is also based on this consideration.

At present, the international trade situation is unstable. For Hengtai Lighting, which relies on export sales, the company urgently needs to find more ways to deal with this challenge. In 2007, the United States not only supported Vietnam's accession to the World Trade Organization, but also announced that it would grant Vietnam most-favored-nation status, which means that Vietnam enjoys certain quotas and tariff-free benefits when entering the US market. In this context, after Hengtai Lighting changes the implementation location of the investment project, it will be able to enjoy preferential export tariff policies to the United States, which will help the company reduce the cost of export products, enhance the international competitiveness of the company's products and its ability to withstand international trade risks, and lay the foundation for the company to further explore the international market.

At the same time, this move will also improve Hengtai Lighting’s overseas layout. In 2019, Hengtai Lighting established a wholly-owned subsidiary in Malaysia, not only to avoid the risk of operational instability caused by the 25% import tariff imposed by the United States on Chinese LED lamps, but also as an important measure to expand overseas markets. Once Hengtai Lighting's annual output of 5 million sets of LED lighting projects is successfully changed by the implementation entity, implementation location and implementation method, Hengtai Lighting's footprint in overseas production plants will be further expanded, and the company will be more able to expand into international markets such as Southeast Asia and Europe. Vietnam's relatively complete industrial supply chain system and labor costs that are more advantageous than domestic ones will also further optimize Hengtai Lighting's cost structure, thereby enhancing the company's profitability.

Conclusion

As countries around the world attach importance to energy conservation and emission reduction actions, the LED lighting industry is developing rapidly and the market size continues to rise. TrendForce estimates that the global LED lighting market size will be US$78.36 billion in 2026, with a compound growth rate of 3.9% from 2021 to 2026. Hengtai Lighting's operations will usher in a good environment and opportunities. As the company plans to relocate its annual output of 5 million sets of LED lighting projects to Vietnam, the company will be able to more quickly seize development opportunities in the downstream industry and help the company achieve long-term development.

It is worth mentioning that, as a company that relies on export sales, Hengtai Lighting has considerable strength. According to information from the China Lighting and Electrical Appliances Association, among enterprises exporting industrial and mining lamp products in the first three quarters of 2021, Hengtai Lighting ranked first. Its export volume of industrial and mining lamps was US$540 million, a year-on-year increase of 63.9%. In the single market of the United States, Hengtai Lighting occupies 1/4 of the market share.