news

한어Русский языкEnglishFrançaisIndonesianSanskrit日本語DeutschPortuguêsΕλληνικάespañolItalianoSuomalainenLatina

Sanyan Technology reported on July 26 that on July 25, Dongfang Zhenxuan issued an announcement stating that on July 25, Dong Yuhui (buyer), Beijing New Oriental Xuncheng Network Technology Co., Ltd. (seller) and Yuhui Tongxing (Beijing) Technology Co., Ltd. (target company) entered into a sales agreement, pursuant to which the seller agreed to sell and the buyer agreed to acquire 100% of the equity of the target company for RMB 76,585,460.

The announcement shows that Yuhui Xingxing's net profit after tax from December 22, 2023 to June 30, 2024 is 141 million yuan.

It seems surprising, why is there an "inverted" relationship between net profit and valuation?

For valuation calculations, the simplest valuation method usually used is the PE (price-to-earnings ratio) valuation method.

If we use the annual net profit of 300 million for Yihui Tongxing and a PE ratio of 10, the valuation would be 3 billion.

Jiaogepengyou had a net profit of 180 million yuan last year and its current price-to-earnings ratio is 14. Based on this PE calculation, Huitongxing is valued at 4.2 billion yuan.

Oriental Selection's price-to-earnings ratio (TTM) is 18. Based on this calculation, Huitongxing's valuation is 5.4 billion yuan.

Many netizens and stock investors also posted that they believed that Yuhui Tongxing was sold at a low price.

Some netizens believe that the valuation of Yuhui Tongxing is too low, and question whether it is a fire sale. The netizen believes that if Yuhui Tongxing was publicly auctioned, "many people would buy it for tens of millions, but Yu Minhong only sold it to Dong Yuhui for tens of millions."

Even though Dong Yuhui is the biggest contributor, New Oriental would not be what it is today without the support of small and medium shareholders. "Yu Minhong could have paid out of his own pocket to transfer billions of yuan from his personal account to Dong Yuhui to acquire Yuhui Tongxing, instead of using the public assets of all shareholders as a favor to Dong Yuhui personally."

The netizen believes that this is an infringement of the interests of all small and medium shareholders.

So how is the valuation price calculated this time?

The announcement revealed that the appraiser responsible for the valuation of Yuhui Tongxing was Jones Lang LaSalle Corporate Valuation and Consulting Co., Ltd., and the valuation of Yuhui Tongxing at RMB 76,585,460 was based on the cost method, which is to calculate the book value of Yuhui Tongxing's assets and liabilities, and then subtract liabilities from assets.

The announcement stated that the cost approach was selected by the appraiser as the most suitable method for this transaction compared with the market approach and the income approach.

The Appraiser believes that given the nature of the Target Company, there are significant limitations in using the market approach and income approach to value the Target Company. Since the market approach usually relies on the value of comparable companies or transactions in the market to determine the valuation, but since the Target Company is heavily dependent on Mr. Dong (as the sales anchor), his departure has brought uncertainty to the future operation and profitability of the Target Company.

As of the Valuation Date, the Appraiser believes that there are no market comparable companies or similar transactions facing similar levels of uncertainty as the Target Company, making it difficult to derive a reference value with sufficient accuracy.

The income approach was also considered inappropriate because it requires detailed operating information and long-term financial forecasts of the target company, but such information and substantive objective supporting data are not available due to the uncertainties mentioned.

Therefore, the Valuer has adopted the cost approach and accordingly the summation approach, under which each identifiable asset and liability of the Target Company is valued using an appropriate valuation technique and the Valuer’s opinion of value is arrived at by adding the constituent assets and deducting the constituent liabilities.

In addition, the appraiser believes that some intangible assets of Huixingxing, such as registered trademarks, copyrights, and related brand names, have no significant value to Oriental Selection and are therefore negligible.

Therefore, based on the valuation report, the valuer believes that the market value of 100% equity of Yihui Tongxing on the valuation date can be reasonably positioned at RMB 76,585,460.

Then why is there such a huge difference between 140 million and 76.58 million?

Depends on two promises.

First, Yu Minhong had previously promised that in addition to receiving the full guaranteed income, Dong Yuhui could continue to receive half of the company's net profit if Hehui Tongxing made profits.

Yu Minhong responded yesterday, "To express my gratitude to Yuhui, in addition to paying all the promised benefits, I have asked the board of directors and the remuneration committee and obtained their consent to award all the net profits of Yuhui Xingxing to Yuhui."

Note the word "paid" in the above paragraph, which means that half of the profit (half of 140 million) 70 million has been paid.

Then, after adding and subtracting the remaining money from the liabilities, there is only 76.58 million left.

Does Dong Yuhui's IP have no value? Note: If the person leaves first, the related intangible assets will have no value to Dongfang Selection.

Many people overlooked one point, that is, there is a sequence between Dong Yuhui's resignation and the acquisition of Huitongxing: According to the announcement, you left the company first and then the acquisition took place.

The announcement stated that most of Huixingxing's intangible assets were closely related to Dong Yuhui's image and name. After Dong Yuhui left, Oriental Zhenxuan could no longer use these trademarks and other intangible assets. Even if it wanted to use them, it still needed Dong Yuhui's authorization.

Therefore, it is believed that these intangible assets will not bring economic benefits to Oriental Selection after Dong’s resignation, and are therefore considered to have no significant value.

It seems to be reasonable in terms of procedure and the rhetoric is acceptable, but it looks awkward. The public believes that Dong Yuhui's IP is of great value.

The above may not be correct, please watch the Oriental Selection Shareholder Exchange Conference in the afternoon.