Tuesday, 18 June 2024, 09:24 HKT/SGT

HONG KONG, June 18, 2024 - (ACN Newswire) - On 15 May, Shanghai Mechanical & Electrical Industry Co., Ltd. (hereinafter referred to as “SMEIC” or the “Company”, 600835.SH) disclosed the Announcement on Related Transaction of Shanghai Mechanical & Electrical Industry Co., Ltd. According to the announcement, SMEIC intends to acquire 100% equity interests in Shanghai Prime in cash. Upon completion of the transaction, Shanghai Prime will become a wholly-owned subsidiary of SMEIC. This transaction constitutes a related transaction of SMEIC.

Based on the pricing principle, as of 31 December 2023, the appraised value of 100% equity interests in Shanghai Prime was RMB5,318 million. Through friendly negotiations among the parties involved in the transaction, the agreed transaction price for 100% equity interests in Shanghai Prime is RMB5,318 million. The final transaction price will be subject to the appraised value filed by the competent state-owned assets administration department.

All the counterparties to this transaction, Shanghai Electric, SEHK and SEG HK, as the performance undertakers, have made performance compensation commitments to the Company in respect of the performance of the target company that, during the performance commitment period (from 2024 to 2026), Shanghai Prime will realize a cumulative net profit of approximately RMB1.059 billion. For the years 2024, 2025 and 2026, the committed net profit for the period will be approximately RMB255 million, RMB352 million and RMB452 million respectively.

It is reported that Shanghai Prime is an industrial group under Shanghai Electric (601727.SH), specializing in the manufacturing and services of industrial basic parts and key components and parts, with five business segments: blades, bearings, tools, industrial fasteners and automotive fasteners. After years of development, Shanghai Prime has expanded its business presence to over 10 countries, with its products being exported to more than 70 countries and regions worldwide. It has become the main force of domestic import substitution of medium and high-end basic parts.

Shanghai Electric has stated that the acquisition of Shanghai Prime will further strengthen the strategic positioning of the Company's "professional, refined, featured and innovative" industrial platform, leveraging the industry position and competitive advantages of Shanghai Prime's subordinate Industrial sectors. After the completion of this transaction, the proportion of revenue from the Company's "professional, refined, featured and innovative" business will be significantly increased by approximately 30% compared with the proportion before the transaction, and the business structure will be effectively optimized. This transaction will make full use of the capital platform attributes of being a listed company and Shanghai Prime's advantageous position in the field of industrial basic parts and key components and parts and will facilitate the Company's transformation in the target market from primarily focusing on commercial users to a balanced emphasis on both industrial and commercial users, effectively enhancing its development space.

At the same time, SMEIC’s size of asset and operation will be significantly increased after the completion of this transaction, which will be conducive to optimizing and adjusting the Company's industrial structure, enhancing its risk resistance and improving its market competitiveness. Following the completion of the acquisition, the scale of the Company's operating income as well as profitability will be effectively enhanced, with the Company's operating income in 2023 and 2022 increasing by 42.93% and 38.09%, earnings per share increased by 23.47% and 35.42%, respectively compared with pre-transaction. SMEIC will become one of the world's largest comprehensive industrial basic parts conglomerates by virtue of a relatively wide range of products offerings and a relatively large scale of operation

It is also worth mentioning that the acquisition of Shanghai Prime will contribute to enhancing the return of SMEIC’s shareholders and safeguarding the interests of the Company's shareholders. In 2023, the Company's cash dividend ratio was 45%, representing the highest dividend ratio since 2015. Upon completion of the transaction, the cash dividend per share will be increased accordingly with the increase in earnings per share.

It can be expected that with the advancement of the related transaction of the acquisition of Shanghai Prime, SMEIC will focus on the common downstream market for the two sides, improve the overall performance of products, expand common customers and services, enhance customer stickiness, improve the value of services, strengthen the Company's digital and intelligent synergies to promote the sharing of high-quality resources between the two sides, thereby enhancing the overall strength and operating results, and creating more value for the shareholders and investors.