Listed company's venture capital fantasies: a single exit can make profits for ten years

 2020 is a harvest season for equity investment. The feast belongs not only to VC/PE, but also to many listed companies.

Looking back at 2018 and 2019, the impairment of long-term equity investments was once a "hanging river" on A-share listed companies. However, under the general trend of equity asset appreciation, today is different.

As of 18:00 on October 22, 2020, a total of 1,365 A-share listed companies have disclosed their performance forecasts for the third quarter of 2020, of which 382 are expected to increase. Among the pre-increasing companies, a group of companies that are actively investing have recorded amazing profit growth, and the benefits of a single exit can be worth a few years or even more than ten years of operating net profits.

From paying 1.8 billion tuition fees to making 3 billion

On October 14 , 2020 , Leo announced that the profit for the first quarter of 2020 is expected to be 3.05 billion to 3.11 billion yuan, a year-on-year increase of 889.14%-908.79%.

In 2019, Leo shares are "difficult households" who need more than 700 million yuan of blood transfusion from the government relief fund. In 2018, Leo shares suffered a huge loss of 1.86 billion yuan due to asset impairment. The reason why Leo shares can make a big turnaround in 2020 is mainly because Ideal Motors successfully listed on the Nasdaq in July 2020 .

In 2020, the concept of new energy vehicles will be popular in the secondary market. After the listing of Ideal Auto, the stock price has risen all the way, with a peak increase of more than 100% and a market value of more than 16 billion US dollars. Leo is one of the major investors of Ideal Auto. According to the announcement, the fair value change income confirmed by Leo's investment in Ideal Auto reached 3.614 billion yuan, and the impact on the net profit of the parent was 2.710 billion yuan. The income of this single is more than the total net profit of Leo shares since its listing.

In 2016, Leo shares invested 350 million yuan in Ideal Motors (then named Che Hejia) and obtained 11.75% of the shares. In 2017, Leo Group increased its capital by 100 million yuan. Leo's investment in Ideal Motors for four years, with a return of nearly 7 times.

Looking back in history, the investment road of Leo shares was quite bumpy, and success was not easy.

Leo shares were listed on the Shenzhen Stock Exchange in 2007, and its main business is the manufacture of water pump products. By 2012, the development of Leo's shares encountered a bottleneck, and the net profit for that year experienced a decline of nearly 60%. Since then, Leo began to seek expansion through investment. The initial direction of mergers and acquisitions was to broaden the field of industrial water pump products. Since 2014, Leo shares have turned to "cross-border mergers and acquisitions."

Public information shows that Leo has invested in 22 companies after 2014, including control investment and minority equity investment. Among them, the total investment amount of 12 companies is close to 5 billion yuan. Most of the invested companies are advertising and Internet companies, and Leo said it will make digital marketing its second main business. The climax of this series of investment activities was that in September 2018, Leo planned to acquire a We-Media company that was established less than three years for 2.34 billion yuan in cash, and was ridiculed by "2.3 billion to buy a WeChat public account." However, the deal eventually fell through due to overvaluation.

However, after 2016, Leo shares began to pay tuition fees, and the digital marketing companies invested in them have changed their performance. In 2018, Leo shares took a big bath, with a one-time provision of more than 2 billion yuan in asset impairment. The share price of Leo shares fell all the way to around 1 yuan, and the actual controllers Wang Xiangrong and Wang Zhuangli's shareholding pledge ratio exceeded 90%. In July 2019, the local government's relief fund rushed to help with blood transfusion of more than 700 million yuan.

Leo shares have stumbled in the key digital marketing field, but its minority equity investments in other fields have performed very well. Following Ideal Motors, Leo has at least 4 IPOs on the way: In June 2020, the photovoltaic company Xinfeng Electronics has applied for an IPO on the Sci- tech Innovation Board; in August, Zhejiang Danong, which is listed on the New Third Board , also announced that it will launch a domestic IPO. In addition, Bicheng E- commerce, an e- commerce agency operating company , has launched guidance for listing on the GEM, and overseas apartment booking platform Weixiang Haoju is also preparing for A-share listing

Fosun in the gaming industry, a single cash out of 4 billion

Among the A-share listed companies, VCs do the most popular, and should be Kunlun Wanwei. Although Kunlun Wanwei is shown as a game company, in sharp contrast with giants and other companies, Kunlun Wanwei's core growth engine since its listing in 2015 is not games, but investment.

The performance forecast of Kunlun Wanwei shows that in the first three quarters of 2020, Kunlun Wanwei is expected to make a profit of 3.98 billion to 4.38 billion yuan, a year-on-year increase of 320.94% to 363.25%. Among them, 2.948 billion yuan is the investment income obtained from the sale of the American same-sex social platform Grindr.

Grindr is currently one of the largest same-sex dating platforms in the world, and Kunlun Wanwei bet early. In January 2016, Kunlun Wanwei acquired a 61.53% stake in Grindr for USD 93 million. In May 2017, Kunlun Wanwei purchased the remaining 38.47% equity for US$152 million. At this time, Grindr's valuation has reached US$400 million.

After Grindr was acquired, the growth momentum was good. Kunlun Wanwei's original plan was to let Grindr go public independently. But soon the U.S. Foreign Investment Review Committee began to intervene, just like a rehearsal of the Bytedance event, Kunlun Wanwei was forced to sell Grindr for US$620 million. Although Kunlun Wanwei has also achieved a three-year doubling of investment return based on the amount of investment, this is obviously far from reaching Zhou Yahui's expectations.

After Kunlun Wanwei went public in 2015, it turned around and took the raised funds to make investments, betting on unicorns such as Zhongqudian, Inke, Ruhan, and Dada one after another. As of August 2020, Kunlun Capital (a wholly-owned subsidiary of Kunlun Wanwei) has invested a total of US$1 billion, not only directly investing in hundreds of companies, but also LPs of VC institutions such as Source Code Capital, Oriental Fortune, IDG, etc. In 2020, Kunlun Capital also successfully raised 2 billion yuan of industrial investment funds.

From 2016 to 2019, Kunlun Wanwei recorded investment income of 493 million, 444 million, 684 million, and 652 million respectively, accounting for 90%, 31%, 46%, and 47% of the current net profit. Kunlun World Wide Web claiming, in terms of the rate of return on the investment, Kunlun capital in the global wind among the best insurance companies to invest in, the boss Zhou Yahui a "unicorn excavator."

If investment income is excluded, Kunlun Wanwei’s performance in the first half of 2020 is not so good, with revenue falling by 7.50% year-on-year, and deducting non-net profit by 23.19% year-on-year. In contrast, other listed game companies such as Perfect World and Youzu Networks have achieved high growth of more than 40% during the same period. But it doesn't matter, Kunlun Wanwei's balance sheet still has a long-term equity investment of 3 billion yuan waiting to be realized.

Judging from the financial report figures, Kunlun Wanwei has not only done a good job of financial investment, but the growth of its main business is also mainly driven by investment. In the first half of 2020, Kunlun Wanwei's net profit was 3.674 billion yuan. Excluding the 2.948 billion yuan gain from the sale of Grindr, the net profit after deduction was 720 million yuan, of which 443 million yuan came from Xianlai Mutual Entertainment . This is Kunlun Wanwei's 2017 Acquired a local chess and card casual game company.

Taking the acquisition of Xianlai Mutual Entertainment, Oprea and other companies as growth points, it also built the capital platform Kunlun Capital. Kunlun Wanwei's layout is like Fosun in the game industry, becoming an investment company with a main business line. Like Fosun, Kunlun Wanwei has also turned its sights overseas. Fosun's main destination is Europe and the United States, while Kunlun Wanwei is going to Africa. Founder Zhou Yahui has resigned as CEO and chairman of Kunlun Wanwei, focusing on managing the African online payment platform OPay, and starting a second business in Africa.

Lamented the difficulty of exit and the large fluctuations, "Buffett in the clothing industry" no longer invests

On October 16, 2020, Youngor once again announced the sale of Ningbo Bank's equity, this time the amount of cash set was 1.48 billion yuan.

After entering the second half of 2020, bank stocks generally rose, and Bank of Ningbo's stock price hit a record high. As the third largest shareholder of Bank of Ningbo, Youngor has cashed in intensively. As of October 15th, it has sold more than 200 million shares of Bank of Ningbo, with a total cash of 7.86 billion yuan and a net profit of 2.22 billion yuan. In contrast, Youngor's net profit in the first half of 2020 was only 2.86 billion yuan.

It is worth mentioning that in May 2019, Youngor also announced a board meeting proposal, stating that Bank of Ningbo would be a long-term strategic investment project to provide the company with stable returns. But after Ningbo Bank's stock price hit a new high, Youngor chose to cash out.

Youngor successfully went public in 1998 and is an established clothing company in China. However, after the listing, Youngor has not many bright spots in the apparel business. For a long time, its revenue has mainly relied on real estate and its profits have mainly relied on investment. Since 2014, Youngor's annual investment income can reach about 3 billion yuan, and its contribution to net profit is between 70% and 90%.

Because Youngor's investment returns are high, founder Li Rucheng is called the "Buffett of the clothing industry." In addition to Bank of Ningbo, Youngor's classic investment cases include listed companies such as CITIC Securities and Lianchuang Electronics. Li Rucheng once admitted: It’s faster to make money in real estate and investment than selling clothes.

But starting in 2019, Youngor has decided not to invest anymore. Li Rucheng made it clear at the shareholders meeting that he was not optimistic about equity investment for two main reasons:

One is "difficult to exit". The Securities Regulatory Commission imposed restrictions on the exit of equity investment, making it increasingly difficult to exit, which put a lot of pressure on Youngor's investment business;

Second, the profit volatility is too great for Youngor to bear.

Li Rucheng said frankly, “Our investment business may have been shrouded in the halo of large investments and large profits in the past, but I believe that our existing investment projects will not contribute too much to the income.”

Youngor announced in May 2019 that it would no longer conduct financial equity investments in non-main business areas. As of the end of the first half of 2020, Youngor's account still has a long-term equity investment balance of 16.6 billion yuan, as well as 10.6 billion investment in other equity instruments. The scope of investment covers many fields such as finance, big data, new materials, and e-commerce. Of course, the most important investment is the Bank of Ningbo. Due to the sharp rise in the stock price of Bank of Ningbo in the second half of 2020, although Youngor has cashed out 7.86 billion yuan from the reduction of its holdings, the remaining stock value still reaches 20 billion yuan.