The recent downturn in the stock of Wencan Co., Ltd. has raised eyebrows, with the company’s shares plummeting by 2.12% after experiencing a significant drop on July 15. By the end of trading on July 16, their stock was valued at 25.39 yuan, resulting in a total market capitalization of 7.827 billion yuanThis unsettling trend hints at underlying issues within the company, particularly stemming from the recently disclosed semi-annual performance forecasts that reveal a staggering decline in net profits in the second quarter when compared quarter-on-quarter.
Once, buoyed by robust growth in performance and booming demand for new energy vehicles, Wencan had positioned itself as a prime investment, showcasing remarkable growth that saw its share prices skyrocket fivefoldHowever, the tides have turned, and due to disappointing performance indicators, the company's stock finds itself in a precarious state.
In this precarious environment, the company has just completed a significant fund-raising round of 1 billion yuan, aiming to expand its business related to components for new energy vehiclesBut what exactly prompted this strategy shift amidst declining stock performance?
Wencan Co., Ltd. specializes in the development, production, and sales of precision cast aluminum alloy parts for automobiles, consistently aiming to innovate in this sector.
The company went public in 2018 and enjoyed a remarkable growth trajectory from 2020 to 2022, with increasing revenues and net profitsOver these three years, its stock value soared from 14.7 yuan to a peak of 98.85 yuan, representing over a fivefold increase.
However, 2023 has marked a turning point, during which Wencan saw its net profit plummet by 78.77% to 50.43 million yuanThis decline can be attributed to several factors: the depreciation of new production capacity for certain electric vehicle clients, increased costs, and a rise in income tax expenses
Advertisements
As a result, Wencan's shares fell by 32.43% throughout the year.
Despite a remarkable resurgence in the first quarter of 2024, where the company reported net profits of 62.06 million yuan—a staggering year-on-year increase of 2344.25%—the mood remains cautious.
The half-year performance forecast for 2024 indicates that Wencan expects a net profit range of 70 million to 90 million yuan, marking a 403.21% to 546.99% increase year-on-yearThis would suggest projected net profits for the second quarter between 8 million to 28 million yuan.
Analysts from Minsheng Securities have released reports reflecting this data, spotlighting a potential net profit growth of 57% year-on-year but a concerning 72.2% decline quarter-on-quarter.
Following these disappointing projections, Wencan's stock price saw a significant drop on July 15, ultimately hitting the market's limit down, with further losses the following daySince the beginning of the year, the stock has plummeted by over 34% within a mere seven-month window.
In light of the dwindling stock prices, recent interviews with Wencan staff indicated that the sharp decline could be linked to the second quarter's unsatisfactory performance forecasts, reflecting a quarter-on-quarter decrease.
Industry observers noted additional concerns in Wencan's announcements regarding previous delivery issues for products from its acquisition of the Paris-listed Bailian GroupThere had been incremental improvements, but the company remains vigilant.
The 2020 acquisition of Bailian Group, which introduced goodwill onto Wencan's balance sheet, has proven to be a double-edged swordAs of the first quarter of 2024, the recorded goodwill stood at 275.5 million yuan, but warnings about potential goodwill impairment have been issued.
In early July, Wencan successfully completed approximately 1.047 billion yuan in private placement financing
Advertisements
An objective of this fundraising was to leverage growth opportunities in automotive lightweighting and integrated casting, solidifying its leading edge.
The raised capital is intended for projects targeting new energy vehicle component intelligent manufacturing in cities like Anhui, Chongqing, and Foshan, with a clear emphasis on enhancing its position in the burgeoning new energy vehicle sector.
Post-completion, Wencan maintains that its core business remains unchanged while it expands both scale and revenueHowever, the actual potential revenue contributions from these initiatives await upcoming financial reports to elucidate.
Wencan had previously alerted investors regarding risks associated with these fundraising efforts, particularly noting that underperformance in project implementation could lead to negative economic ramifications in light of increasing depreciation and amortization expenses.
Amidst these developments, the trend of integrated die-casting has been recognized as a potential game changer in the industry, particularly as companies like Tesla have set a precedent in adopting this advanced manufacturing technology.
According to Wencan's 2023 report, the demand for lightweight components in new energy vehicles is surging, with projections indicating that reducing a vehicle's weight by 10 kg can extend its range by 2.5 kmThis performance-driven urgency opens a vast market for lightweight automotive components.
The integrated die-casting supply chain consists of equipment manufacturers, material suppliers, mold makers, third-party die-casting factories, and automakers creating their casting linesIn this complex environment, Wencan operates within the die-casting manufacturing sector, facing mounting competition.
In recent years, the emergence of electric vehicle startups like NIO and XPeng as well as established names such as Changan, Volkswagen, and Volvo adopting integrated die-casting technology has intensified the competitive landscape.
Currently, the die-casting industry is characterized by fierce competition and a high degree of market saturation
Advertisements
Advertisements
Advertisements