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Friendship between GGTT and LCE---Decennial Ceremony of GGTT II

Date: 2016-07-25
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————First Encounter ————

The year of 2011 is the third anniversary of the establishment of Shanghai branch of GGTT, which has taken the initial shape with as many as 14 employees. FENG Xin then was the commander and ZHOU Jian worked first for TTGG (affiliated to GGTT in Hangzhou) after he graduated from Zhejiang University and then serves as the general manager of the investment department for Shanghai branch 6 years later.
The relation between GGTT and Jiangxi Lianchuang Electronic Co., Ltd. (hereafter referred to as LCE) began from a common project promotion and their long-term cooperation has opened since. Established in 2006, LCE locates the headquarters in High-tech Zone, Nanchang City, Jiangxi Province, and specializes in touch screen and optic lens. For one thing, LCE optics ranks top in the subdivided industries; for another, LCE touch screen was initiated just in 2010. With the great development of smart phones, touch screen, a “small product”, has occupied an explosive “big market” and has grown up to an emerging industry. On the whole, LCE has been initially equipped with most features a PE investment object of GGTT should have, including clear development track, a certain market share, stable current flow and clear strategic planning and profit increasing point of the future.
Nevertheless, years of investment experience tells FENG Xin and ZHOU Jian that the success of a company depends on the employee.
ZHOU Jian first met HAN Shenglong, LCE’s president, when he was conducting on-site due diligence. HAN Shenglong who was modest and polite impressed ZHOU Jian a lot. He always spoke of technology and operation with favor and assurance. His control on the company’s overall strategy and his pursuit of details revealed his confidence in the company. FENG Xin and HAN Shenglong have kept their friendship for many years and he describes HAN as a learned, elegant scholar and a wide-sighted, aggressive entrepreneur. 
Three months after that, LCE’s project was deliberated at GGTT’s investment and decision-making conference. HAN Shenglong appeared in person to introduce his company and reply to the questions from the committee members who greatly praised him. Mr. HAN then was 53 years old, enjoying the glories of “special government allowance issued by the State Council”, a consecutive top leader of the state-owned company and president of the listed LCE, but he was still a kind, modest and scholar-like entrepreneur with technology. At the conference, HAN Shenglong showed his familiarity with LCE’s business condition, strategic planning and core advantages and his high spirit and persistence was hidden under the gentle and moderate appearance. He expressed his opinions with proper reason and evidence. He is exactly the entrepreneur GGTT is seeking for. LCE was a young company with low profits but had a reliable team. That is the reason why LCE has passed GGTT’s investment and decision-making conference.
Although FENG Xin was confident in LCE’s success, he had never thought GGTT was so satisfied with LCE. After the conference, Tianjin Happy-silicon Hongsheng PE Fund Limited Partners, Shanghai Happy-silicon Hezhong Venture Capital Co., Ltd., Shanghai Happy-silicon Yangguang Venture Capital Co., Ltd., Beijing Happy-silicon Hezhong Venture Capital Co., Ltd., Zhejiang Tiantang Guigu Yinze Equity Investment Limited Partners and Chengdu Happy-silicon Tongwei Yinke Venture Capital Co., Ltd. paid total RMB 126 million Yuan to buy LCE’s shares in 2011; Tianjin GGTT Hongsheng Equity Investment Fund Partnership (Limited Partnership) added RMB 10 million Yuan in 2013. Such an investment is not only huge in PE investment circle but also exceeds private placements of many listed companies.
The grandeur of the signing ceremony is still fresh for FENG Xin and ZHOU Jian. The contracting parties were present and relevant leaders in Nanchang Municipal Party Committee, including the vice-mayor who was taking charge of the industry, also showed their appearances as invited, which indicates that the local government attaches great importance to LCE and the local industrial development.
LCE’s first majority shareholder then was a Taiwan-funded enterprise but never engaged in the practical business. The second majority shareholder was the management team led by HAN Shenglong. GGTT’s strategic investment decreases the former’s share proportion, strengthens the management team’s say, optimizes the company’s governance structure and forms a steady triangle relation which afterwards has played an important role in LCE’s development, balancing the shareholders and helping them to reach a consensus.
LCE after fund-raising achieves more and more as expected. Its net margin in 2012 exceeded RMB 60 million Yuan, doubling to more than RMB 120 million Yuan in 2013 and reaching RMB 140 million Yuan in 2014. The improvement of internal strength and technology has transferred LCE to the biggest optics supplier from an original manufacturer of a famous American sports camera company with its shipments accounting for 70-80% of amount purchased. In 2014, the global sports camera shipments amounted to 7.8 million and 6.9 million LCE’s sports camera lens were sold out. LCE becomes the biggest sports camera lens supplier in the world.

                                        ———— Go Forward Hand in Hand ————

Not all investments are smooth. On the one hand, A and B shares markets began to slump since August 2009, in which the major economies manifested the worst for successive 3 years. On the other hand, CSRC began to clear out the companies applying for listing that had made some frauds and thoroughly investigated dozens of companies to eliminate their financial fraud. The IPO was not allowed to be sold until January 2014. Companies applying for listing were eager to take actions. It is easy to imagine a one-thousand-long queue at the IPO entrance. LCE began to prepare for the IPO and finished its shareholding reform in 2013 and there was a very long queue before it.
LCE has no choice but to give up landing on the capital market, wait for its turn or find a new way.
The rapid development and violent competition of the smart phone market in China have created a large development space as well as market competition for smart phone parts. To stand out in the cruel competition, LCE has to get the pioneering advantages and sustainable support in terms of the capital. There is no doubt that to be listed is a major way for an electronic company in China to obtain sufficient fund and resources and expand its scale and influence. If LCE chose to give up the capital market, it would be faced with not only the development crisis but also the survival risk; if LCE chose to wait in line, it would lose the pioneering advantages or be faced with more uncertainty of the capital market. Above all, LCE had better find a new way.
HAN Shenglong was anxious; so was the Shanghai team of GGTT. At the end of 2013 when talking to HAN Shenglong, the Shanghai team raised a proposal---backdoor listing. It attracted HAN Shenglong at once. After series of arguments and preparations, LCE and the Shanghai team have been looking for a “shell” for half a year since the second half year of 2014. On December 31, 2014, HAN Shenglong and ZHOU Jian left for Chengdu to discuss about a shell but came back in depression. Just at the day before the New Year’s Day, the two lonely were “roaming about” in Chengdu.
Trials and tribulations LCE and GGTT have gone through are far more than this. When LCE’s following profit growth point capacity was not released to the full and the performance growth did not reach the expectation, GGTT gave sufficient understanding and trust to LCE; when LCE needed more development funds, GGTT opened its purse over and over again; when shareholders’ opinions were divided on the company’s strategic development, GGTT voted for the management team time and time again on the general meeting of the shareholders; FENG Xin, LCE’S director, and ZHOU Jian, LCE’s supervisor, appointed by GGTT, accompany HAN Shenglong as friends, offering advices and suggestions and overcoming difficulties together.
They are more likely to understand, tolerate and support each other since they have been together in trouble. Their mutual trust has been built in every single trouble and thus is more steady and firm. Fortunately, their struggle and persistence are exchanged for sunshine after rain.
At the night of May 24, 2015, Hanma Industry (002036) that had been delisted 4 months ago issued a major assets restructuring plan which announced that LCE would be listed under the former’s shell. The trade scheme showed that the trade covered assets replacement, stock issue, cash purchase for the assets and supporting funds collection for the private placement. According to the Recombination Agreement signed by Hanma Industry and LCE’s 22 shareholders, including GGTT, Jinguan International and Jianxi Xinsheng, Hanma Industry planned to exchange RMB-615.5-million-Yuan assets for equivalent amount of stock right hold by LCE’s whole shareholders. 100% LCE’s shares replaced were worthy of RMB 2,850 million Yuan. The above gap would be filled by issuing 308.4967 million shares at the price of RMB 7.65 Yuan/share and paying RMB 125.5 million Yuan in cash. Meanwhile, in order to improve the recombination performance and the listed company’s subsequent business capacity, LCE raised private placements of no more than RMB 200 million Yuan from funds “GGTT Hengxin Treasure No. 1 Assets Management Plan”, Jianxi Xinsheng and Jirong Investment affiliated to GGTT for LCE’s “annual 60 million high-pixel mobile phone lens industrialization project”.
In May 25, Hanma Industry was relisted and reached limit-up for successive 12 times. Share price soared to RMB 32 Yuan from RMB 8.59 Yuan before being delisted.
7 funds subordinated to GGTT were listed in LCE’s shareholders, holding total 14.65% stock right of LCE. Since 2011, the book profits of LCE’s shares in GGTT’s hand have been almost 8 times.
At the end of 2015, LCE’s backdoor listing was approved officially. Persistence and efforts led to an all-win situation. By dint of entering into the capital market, LCE’s popularity and resources have been increased a lot; up to now, Hanma Industry’s market value has almost been tripled and its minority shareholders share the bonus from the listed company that have improved its quality; GGTT’s 8 funds (including the “GGTT Hengxin Treasure No. 1 Assets Management Plan” that has engaged in LCE’s first private placement after the backdoor listing) also enjoy the benefits of capital appreciation.  
                                       ———— Embrace the Future Together ————

Undoubtedly, backdoor listing is an important milestone in LCE’s development. The opportunity transfers the company’s accumulated strength into a sudden success which attracts various resources and HAN Shenglong is devoted himself to integrating those resources. Entering into the capital market makes the company stronger and it is the first good battle for LCE after being listed to purchase Melfas, a listed company on South Korean GEM, with the help of the integrated resources.
Melfas is a famous manufacturer in South Korea, specializing in R&D, production and sale of the capacitive touch product. Samsung Group is its major customer. With the rising smart phone market saturation in recent years and the limited market in South Korea, Melfas is stuck in the more evident bottleneck in South Korea and is longing for collaborations with foreign market. The relation between LCE and Melfas dates from 2 years ago in 2014 when the two parties in cooperation set up Jiangxi Liansi Touch Technology Co., Ltd., specializing in R&D and promotion of the top and medium products concerning touch screen technology. Based on collaboration and mutual trust, the listed LCE purchases Melfas without extra efforts.
Early in 2016, LCE, GGTT and Jiangxi Industrial Venture Capital Guidance Fund Co., Ltd. established Jiangxi Lianchuang GGTT Integrate Circuit Industry Fund Limited Partners which invested in the South Korean listed company Melfas by private placement in June and became Melfas’s first majority shareholder. LCE takes advantage of merging Melfas to expand its industrial chain to the front-end semiconductor industry, greatly promoting its competitiveness in global cell phone chips and virtual reality industries.  
Merging Melfas is regarded as an outstanding case for complementary advantages the two parties have in respect of customers and regional market. For one thing, LCE expert in optical lens and touch screen and Melfas focusing on chips both serve the cell phone manufacturer, and are able to share customers to a large extent and avoid cut-throat competition out of different major business; for another, Melfas that is limited in the South Korean market can seize the opportunity to integrate into the Chinese market and escape from the limited market capacity and in turn, LCE can spread its business to South Korea and beyond and greatly enhance its popularity in the international market.
The market gave the cooperation a good feedback. The next day after the merger was announced, Melfas’s share price reached 30% limit. Just in a month, Melfas’s share price rose up to approximately KRW 10,000 from KRW 5,500 of purchasing price for industry fund. Melfas appreciated the industry fund’s integrity and advance speed. A lot of South Korean private and listed companies were attracted to cooperate with GGTT. From the early resistive touch screen to capacitive touch screen, display module and the fitted integration production, LCE advances deeper and deeper in the touch display field. In the future, LCE will continue the cooperation with Melfas via the industry fund and focus on R&D, production and sale of analog chips, which may enhance LCE’s status in touch display field and in the core area of consumer electronics industry. Long company with affection will widen the future imaginary space of LCE and GGTT. 
In the five-year cooperation, GGTT and LCE move ahead down to earth and have seen both thorns and flowers at their feet.
In the future, we expect GGTT, TTGG and LCE will accompany with each other for more five, ten years and the beautiful flowers will bear sweet fruits.

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