Fangda Group's LED business performance has shrunk or bleak

Recently, Fangda Group predicted that net profit in the first half of the year will drop by 50% to 80%. The company said that the change in performance was mainly due to the decision of the board of directors to stop the operation of the holding subsidiary Shenyang Fangda Semiconductor Lighting Co., Ltd. (hereinafter referred to as Shenyang Fangda), which was caused by Shenyang Fangda's impairment of related assets.

According to the announcement of the board of directors released by Fangda Group on the evening, since the establishment of Shenyang Fangda in 2007, due to the continuous decline in the price of semiconductor lighting (LED) products, the market competition is fierce, and the development and production of LED epitaxial wafers and chips require a large amount of capital investment. Insufficient capital investment, resulting in the industrial scale of Shenyang Fangda is too small, the business has not improved, in 2011, the net profit of loss of 17.29 million yuan (hereinafter referred to as the yuan), accounting for -17% of Fangda Group's net profit for the year. For this reason, the group decided to stop the operation of Shenyang Fangda.

Aijian Securities revealed that the LED industry has not been as good as expected in recent years. In the early stage, many enterprises have swarmed up and overcapacity. If there is no technological advantage, the yield is not high, and in the price war, some enterprises will shut down. Shenyang Fangda is a failure case for investing in the LED industry.

Tianfeng Securities said that the main problem of Shenyang Fangda should be that the core technology and product quality are not good, the profit of the other big group has no positive contribution, and the short-term improvement is small. The company may consider to peel off this piece first. Assets, if Shenyang Fangda can be profitable in the future, then get it back.

Fangda Group also stated in its 2011 annual report that in 2012, the company will further strengthen the LED display system in the curtain wall system, and take the advantage of combining LED engineering application and curtain wall industry as the key development direction.

Then, why didn’t Fangda Group invest more money in the LED business? A staff member of the company's board of directors did not give a positive explanation, saying that it was the company's strategic development needs. However, the company's financial statements show that the company's financial situation has deteriorated in recent years, and cash flow is quite tight.

The Wind database shows that in the first quarter of 2012, Fangda Group's revenue was 234 million yuan, down 10.8% year-on-year, and net profit was 724.83 million yuan, down 45.60% year-on-year. In the same period, Yasha shares (revenue and net profit increased by 51.67% and 57.67%, Jinhao's revenue and net profit increased by 40.79% and 72.46%.

The data also show that from 2010 to the first quarter of 2012, Fangda Group's accounts receivable were 397 million yuan, 664 million yuan and 663 million yuan, accounting for 34.16%, 49.22%, 283.33% of the revenue in the same period. The turnover rate of accounts receivable decreased from 3.18 to 0.35; the inventory was 280 million yuan, 254 million yuan and 225 million yuan respectively, accounting for 22.23%, 19.11% and 18.14% of current assets respectively, and the inventory turnover rate dropped from 3.99. To 0.78. Correspondingly, in the first quarter of 2012, the accounts receivable turnover rate and inventory turnover rate of Yaxia shares were 0.44 and 3.96 respectively, and the accounts receivable turnover rate and inventory turnover ratio of Jinyu were 0.59 and 39.62, respectively. The operating turnover capacity is stronger than Fangda Group.

The increase in accounts receivable and inventories caused the cash flow of Fangda Group to be tight. From 2010 to the first quarter of 2012, the company's net operating cash flow was -31.877 million yuan, -57.45 million yuan and -424.59 million yuan respectively.

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