Reprinted from the financial community as follows:
According to the China Economic Network, Wang Sanyun, the former Secretary of the Gansu Provincial Party Committee who was recently removed from his position, was reportedly involved in illegal activities related to Sanan Optoelectronics, a listed company in Fujian, during his term as Governor of Anhui province. Data shows that in October 2002, Wang Sanyun became the Deputy Secretary of the Fujian Provincial Party Committee. From November 2007 to December 2011, he was responsible for Anhui’s administration.
In January 2010, the Wuhu Optoelectronics Industrialization Project of Sanan Optoelectronics, a listed company in Fujian, signed a contract in Hefei. Over the eight years between 2009 and 2016, Sanan Optoelectronics' annual reports revealed a total government subsidy of 3.395 billion yuan. Public reports indicate that nearly all of Sanan Optoelectronics’ street lamps were purchased from Cinda Optoelectronics and then sold to the government at triple the market price. All orders involving government funds bypassed the procurement bidding process, raising suspicions of illegal activity.
Today at noon (13th), Sanan Optoelectronics held a conference call for its management. Former Chairman Lin Xiucheng, current Chairman Lin Zhiqiang, and Secretary General Li Xuechao attended the meeting and addressed a series of questions.
Q: What is the confirmed and unconfirmed amount of the streetlight project? The previous report indicated a gross profit margin exceeding 70%. Could you explain this?
A: Street lamp products have already confirmed 600 million yuan in Wuhu. Some street lamps are currently being installed in Pingtan and Guowang, Fujian. In 2014, over 20 billion yuan worth of projects began, with contracts totaling more than 4 billion yuan. The gross profit margin for street lamps is over 60%, compared to the market average of 30-40%. While our margins are slightly higher, our warranty periods are longer.
Regarding Wuhu investments, these have been fully disclosed. We appreciate everyone's support for Sanan Optoelectronics. The news from yesterday was actually an investment made in Wuhu back in 2011. The subsidies were part of a comprehensive plan. These have been fully implemented over the past few years. Some concerns were raised in 2013, but recent suggestions confirm that the original explanations remain valid. We hope there will be no further discussion.
Q: With a new chairman on the board, what are the new strategies and goals for the company? What new businesses does the chairman want to develop, and how will they integrate with Sanan? Given that the new chairman was previously a deputy director, what changes have occurred since taking office? How will Lin Zhidong’s role as deputy general manager shape future operations?
A: Former Chairman: The entire group has many responsibilities. Since the introduction of the national big fund, a series of actions have been underway. The current environment for acquisitions and mergers is not favorable, making it very challenging. More focus is placed on the day-to-day operations of the group and the work of the security fund. I am no longer involved in the overall listing plan.
Lin Zhiqiang: In the future, the company's strategic arrangements will not change significantly. The first step is to consolidate the existing LED business and increase the market share from the current 12% worldwide to over 30% in the future. The second part involves developing integrated circuit business, primarily focusing on gallium arsenide and gallium nitride. Currently, there are some promising results. GaAs has already begun shipping, and we aim to accelerate this process. GaN will be completed in the second half of the year and scaled up next year. Plans for the next 3-5 years are already underway and will be revealed by the end of this year. Detailed indicators will be shared in future meetings.
Lin Zhidong joined the listed company's management to oversee the domestic and international business of integrated circuits. This segment of clients is both concentrated and of significant importance. To facilitate smoother communication, Lin Zhidong was appointed as a senior management staff member of the listed company to strengthen this part of the business.
Q: Based on the current progress, what does the business development look like for next year?
A: This business will see substantial improvement next year. However, the extent of growth will depend on how quickly the verification process unfolds in the second half of the year.
Q: When will the supply and demand dynamics of the LED business continue to be tight?
A: Sanan's traditional LED business remains a strong point in the coming years. Rapid entry into new fields continues to drive demand. Sanan’s business has high visibility over the next two years. Further cooperation with major international companies in foreign markets has laid a solid foundation for better production and sales in the future. From a pricing perspective, stability is expected over the next 1-2 years.
Q: Regarding media reports and market rumors, will the government continue to support the collapse of certain projects? Will employee stock ownership plans be reduced in the future? What is the future plan?
A: As a national priority for semiconductors and LEDs, the country maintains a uniform standard. Policies are national and open. Sanan benefits from preferential policies and subsidies while striving for fairness. Sanan’s technical advantages ensure strong competitive results.
Employee stock ownership plan: 36-month duration. 1:2 allocation. Renewal is not possible upon expiration. Early product design required selling loans, but this issue has been forcibly resolved.
Q: The performance of the quarterly report is quite positive. What are the expectations for the half-year and full-year earnings, and profitability?
A: From the company's performance perspective, the overall situation is favorable. The operating results in the first quarter were excellent. The company expects to maintain this positive trend. The current price system is relatively stable. Future capacity expansions are expected to increase revenue.
Q: The status of compound semiconductors in the second half of this year, profits, and growth?
A: This revenue contribution will not be significant in the short term and will not impact this year's performance. Progress will be notable in the next year and beyond, contributing to revenue and performance.
Q: The number of machines increased in the first half of the year. What is the growth rate in August, and how fast is the expansion? Are other competitors expanding production, and how does this affect the LED trend? How long can current profitability last?
A: Regarding the machines, more than 100 units will be put into production in the future. Starting in August, approximately 10 units will be added each month, with future capacity releases planned.
Globally, the Taiwan region is reducing production, and neither Samsung nor Philips is expanding. Most of their cooperation is with Sanan through OEM arrangements. Domestic companies like Huacan have expanded production, but their product layouts and models differ, having minimal impact on the overall market. The market will grow at a healthy pace in the future.
In the long term, Sanan has made some preparations for future LED developments. For instance, in the area of invisible light, we have increased production capacity, but it is insufficient. Expansion plans will be proposed in the next one or two years.
Q: Will the company issue a new announcement regarding yesterday's news?
A: An announcement was made in 2011. In 2013, there were investor inquiries, but these should not be revisited. The policy is nationwide, and there is no need to revisit projects linked to investment scale. LED support is not more than others, but better than others.
Q: Has the company's stock price been affected?
A: It is more important to look at the facts. Clarifications were issued in April 2013. We have repeatedly clarified matters in Anhui Province. I feel there is no need for further clarification.
Q: When will the performance forecast be released?
A: Performance-sensitive information is disclosed according to exchange rules and cannot be announced now.
Q: What is the proportion of income and profit generated from Anhui Province in recent years?
A: Annual reports disclose this information every year.
Q: In the next two years, what is the status of equipment subsidies that will be put into production in Anhui and Xiamen?
A: Equipment is amortized over 8 years. Advance payments receive a 30% subsidy, 60% subsidy after installation, and 10% at the end. This applies before equipment production begins. Equipment is not a one-time investment but a gradual process. Subsidies are provided before equipment production.
For the subsidy, 103 pieces of equipment in the Anhui project have been installed and subsidies taken up. Amortized over 8 years. The current discussion mainly revolves around projects. Subsidies and amortization are similar to previous years. Equipment for 150-160 units has been installed, and Xiamen has signed for a subsidy of 200 units.
Q: Will the subsidy situation decline?
A: Not just Anhui and Xiamen. Yiwu and Jiangxi are still executing subsidies. Looking at the big picture, if there is a global change, it will change. Without global changes, it will not change.
Q: It is recommended that the company clarify this media report, as many investors now have no impression or understanding of the incident from 2013. We suggest the company provide some clarification.
A: We will consider this and re-evaluate and communicate accordingly. The specifics are not entirely based on the company’s ideas alone.
Q: Will the company issue a new announcement for yesterday’s news?
A: An announcement was made in 2011. In 2013, there were investor inquiries, but these should not be revisited. The policy is nationwide, and there is no need to revisit projects linked to investment scale. LED support is not more than others, but better than others.
Q: Has the company's stock price been impacted?
A: It is more important to look at the facts. Clarifications were issued in April 2013. We have clarified many times regarding Anhui Province. I feel there is no need for further clarification.
Q: When will the performance forecast be released?
A: Performance-sensitive information is disclosed according to exchange rules and cannot be announced now.
Q: What is the proportion of income and profit generated from Anhui Province in recent years?
A: Annual reports disclose this information every year.
Q: In the next two years, what is the status of equipment subsidies that will be put into production in Anhui and Xiamen?
A: Equipment is amortized over 8 years. Advance payments receive a 30% subsidy, 60% subsidy after installation, and 10% at the end. This applies before equipment production begins. Equipment is not a one-time investment but a gradual process. Subsidies are provided before equipment production.
For the subsidy, 103 pieces of equipment in the Anhui project have been installed and subsidies taken up. Amortized over 8 years. The current discussion mainly revolves around projects. Subsidies and amortization are similar to previous years. Equipment for 150-160 units has been installed, and Xiamen has signed for a subsidy of 200 units.
Q: Will the subsidy situation decline?
A: Not just Anhui and Xiamen. Yiwu and Jiangxi are still executing subsidies. Looking at the big picture, if there is a global change, it will change. Without global changes, it will not change.
Q: It is recommended that the company clarify this media report, as many investors now have no impression or understanding of the incident from 2013. We suggest the company provide some clarification.
A: We will consider this and re-evaluate and communicate accordingly. The specifics are not entirely based on the company’s ideas alone.
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