Luyitong acquires Bitcoin chip manufacturer for 3 billion

Author: Hey Yaoyao

The price of Bitcoin has gone crazy again this year, with a 22-day increase of more than 60%; even more tycoon is that listed company Luyitong plans to acquire a company whose main business is manufacturing chips for Bitcoin "mining machines" for 3 billion yuan.

Reorganization

3 billion yuan to restructure a chip company

Recently, Shandong Luyitong Intelligent Electric Co., Ltd. issued a restructuring announcement plan. Luyitong intends to purchase 100.00% of the equity of Hangzhou Canaan Creative Information Technology Co., Ltd. held by Zhang Nangeng and 14 other parties by issuing shares and paying cash. The transaction pricing is expected to adopt the results of the income method evaluation. The final transaction price is 3.06 billion yuan, 1.06 billion yuan will be paid in cash, 1.998 billion yuan will be paid by issuing shares, and the number of shares issued is 81.34 million shares. The counterparty promised that the net profit of the target company from 2016 to 2018 will not be less than 180 million yuan, 260 million yuan and 350 million yuan respectively, and the total will not be less than 790 million yuan. This transaction constitutes a major asset restructuring, not a backdoor listing.

Before this transaction, Luyitong's main business was the R&D, design, production and sales of complete sets of electrical equipment, and its products were used in multiple fields such as power generation, power transmission and distribution, and downstream power consumption; Canaan's main business was the R&D, design and sales of application-specific integrated circuit (ASIC) chips and their derivative equipment, and provided corresponding system solutions and technical services. Currently, it is mainly used as the basic computing equipment of the digital blockchain system, and blockchain technology is mainly used in digital currency, smart contracts, financial asset transactions, etc. Through this acquisition, Luyitong wants to use its own technical accumulation in the field of complete sets of electrical equipment, combined with Canaan's accumulated software and hardware technical service capabilities in the chip field, to fully combine the three elements of the Internet of Things (network + chip + equipment) to create a system solution for smart grid equipment.

In layman's terms, Zhang Nangeng, the founder of Canaan Creative, sold the company that manufactures chips for bitcoin "mining machines" to Luyitong at a sky-high price of 3 billion yuan. If the reorganization is completed, Zhang Nangeng will gain nearly 500 million yuan in wealth.

focus

Will the CSRC approve the restructuring?

Canaan Creative was founded in April 2013. Its main trademark is "Avalon Miner" and its legal representative is Zhang Nangeng.

Zhang Nangeng was born in 1983 and is known as "Pumpkin Zhang" in the Bitcoin circle. In 2011, Zhang Nangeng, who was studying for a master's degree in circuit design at Beihang University, came into contact with Bitcoin by chance. He used the technology he learned in his major to make a machine for mining Bitcoin and sold it abroad to earn extra money. In 2013, Zhang Nangeng and his partners established Canaan Creative. According to information, the four natural person shareholders of Canaan Creative, including Zhang Nangeng, were all born in the 1980s, and the youngest was born in 1985.

As Canaan Creative's main product, the Avalon mining machine is mainly used for "Bitcoin mining". Avalon is essentially a chip used for repeated calculations. Canaan Creative is responsible for the design and sales of the chip, and the foundry part is completed by TSMC.

What is puzzling to the outside world is why Luyitong, whose main business is the manufacture and sale of high and low voltage electrical equipment, paid a high premium to acquire a company related to Bitcoin? Luyitong explained that after the transaction is completed, the company will become a dual-core company, "providing a more reliable performance guarantee for listed companies." Investors questioned whether Luyitong's acquisition was intended to cater to the market's "Bitcoin" concept and was "telling a story."

A securities firm published a research report saying that Luyitong's 3 billion yuan acquisition of Canaan Creative will become the first "blockchain + artificial intelligence" stock. Through the reorganization, Luyitong, which was listed last year, officially entered the most popular blockchain concept stock in the market. Blockchain is considered to be a new data structure, which was born out of Bitcoin technology in 2008 and was first proposed by Bitcoin's father Satoshi Nakamoto in a white paper. It is understood that blockchain has the characteristics of decentralization, trustlessness, scalability, anonymity, security and reliability. In May this year, the blockchain crowdfunding project DAO became the largest crowdfunding project in history. Data shows that the project crowdfunding started on May 1 and has raised nearly 109 million US dollars in just 15 days. Previously, the crowdfunding amount of the world's largest crowdfunding project game "Star Citizen" was 110 million US dollars.

Stimulated by this news, A-share blockchain concept stocks emerged on May 17. Among them, Feitian Chengxin and Yuyin shares quickly hit the daily limit at the opening, Hengsheng Electronics and Yingshisheng rose by more than 6%, and 35.com, Weishitong, and Haili Meida rose by more than 3%. In the following 23 trading days, Feitian Chengxin received 4 daily limits in the volatile market.

Doubts

What supports the valuation of the target company?

According to Luyitong's restructuring plan, Canaan Creative started actual operations in the second half of 2015. In 2015, the company achieved a net profit of 2.45 million yuan. In the first four months of this year, Canaan Creative has achieved a net profit of 44.49 million yuan. The nearly 20-fold surge in net profit is due to a magical device - the Avalon mining machine. Canaan Creative said: "After the Avalon mining machine digital blockchain computing equipment was developed in the second half of 2015 and put on the market for sale, the number of customers and orders increased, and revenue increased significantly."

According to the Performance Commitment Compensation Agreement signed by Lu Yitong and Canaan Inc. shareholders including Zhang Nangeng and Li Jiaxuan, if the total actual net profit of Canaan Creative during the compensation period is less than 90% of the total net profit forecast, the profit compensation obligor agrees to compensate Canaan Creative for the part of the actual net profit that is less than the promised net profit. According to the 2016 net profit performance commitment of 180 million yuan, to fulfill the commitment, the net profit this year will increase by 72.31 times year-on-year.

As for Canaan's competitive advantages, the restructuring plan stated that Canaan has fully mastered the industry's advanced chip R&D and design process using 28nm technology, and the next-generation 16nm product is scheduled to be mass-produced in the second half of the year. The target company is ahead of its competitors in terms of technology. The target company has formed a long-term and good cooperative relationship with TSMC, the leader in the wafer manufacturing industry, and ASE, the leader in the packaging and testing industry, laying a solid foundation for subsequent chip R&D and mass production.

It is worth noting that from January to April this year, when operating income soared, the first, fourth and fifth largest customers of Canaan Creative's top five customers were all natural persons, namely Chen Jian, Liu Hui and Chen Jing. During the reporting period, Canaan Creative's sales revenue to the three natural persons was RMB 33.7634 million, RMB 13.403 million and RMB 9.0922 million, accounting for 21.25%, 8.43% and 5.72% respectively. Market insiders said that three of the company's top five customers are natural persons. Compared with corporate customers, the natural person customer group is not stable, and whether the company can achieve such a leapfrog performance commitment still needs to be questioned.

Other media questioned that from April to July 2015, the valuation of the target company increased by 295.35%, and from January to March 2016, the valuation of the target company increased by 1664.71%. What is the reason for such a dramatic change in valuation? In addition, Canaan Creative and its subsidiaries do not have their own property, and their office space is obtained through leasing. As of the signing date of the plan, Canaan Creative has not obtained any patents, and the trademark number is also in the process of application. The risks involved cannot be ignored.