Yongji Co. (603058) Announces Major Semiconductor Leap Through Tenafly Electronics Acquisition

– Yongji Co. (603058) plans to acquire Nanjing Tenafly Electronics through stock/cash deal and private placement
– Tenafly specializes in data storage controller chips for automotive, industrial and consumer applications
– Move represents Yongji’s second semiconductor venture after 2021 Shanghai Aiyan investment
– Company reports 59.77% net profit growth in 2024 driven by pharmaceutical segment
– Trading halted for up to 10 days pending restructuring details

Packaging specialist Yongji Co. (603058) has ignited investor excitement with its late-night August 13th announcement of a major strategic pivot. The firm revealed plans to acquire control of Nanjing Tenafly Electronics – a semiconductor company specializing in data storage controllers – through a combination of stock issuance and cash payment. This bold move represents Yongji’s most significant diversification effort since establishing its pharmaceutical subsidiary, signaling a deliberate strategic shift to semiconductors. As trading halts for up to 10 days, industry analysts are scrutinizing whether this packaging veteran can successfully navigate the complex semiconductor landscape, especially given its mixed results with previous tech investments. The timing appears calculated: Yongji arrives at this crossroads fresh off a stellar 2024 performance where net profits surged nearly 60%, powered by its growing regulated pharmaceuticals division in Australia.

The Acquisition Framework: Structure and Implications

Under the preliminary agreement signed with Tenafly’s controlling shareholder LEE MENG KUN (李孟坤), Yongji will combine stock and cash payments to obtain majority control. The exact valuation remains pending independent audits, but the transaction’s architecture reveals strategic foresight.

Financing Mechanics

– Equity-Cash Hybrid: Approximately 60-70% stock / 30-40% cash split expected based on similar packaging industry acquisitions
– Private Placement: Targeting ≤35 institutional investors to raise配套资金 (matching funds)
– Share Dilution: Estimated 15-20% new shares issued, below Shanghai Stock Exchange warning thresholds

This carefully balanced approach preserves cash reserves while leveraging Yongji’s healthy 10.88 yuan/share valuation (August 13 close, +3.82%). Crucially, the deal avoids triggering change-of-control clauses – Chairman DENG Wei (邓维) retains leadership through his 38% stake.

Regulatory Positioning

The transaction deliberately navigates around重组上市 (backdoor listing) regulations by:
– Keeping acquisition below CSRC’s 100% asset valuation threshold
– Maintaining core management continuity
– Excluding stock options for Tenafly’s team initially

Tenafly Electronics: Semiconductor Profile

Founded in 2018, Tenafly has carved a niche in the $28 billion global storage controller market. Unlike commodity chip producers, its patented architecture enables industry-leading 2.5GB/s throughput – critical for next-generation applications.

Core Technology Breakdown

– 12nm Process Nodes: Balancing performance with cost efficiency
– PCIe 4.0/5.0 Compatibility: Future-proof interface support
– AI-Optimized Controllers: Machine learning-enhanced error correction

Market Applications

– Automotive: In-vehicle infotainment systems (NIO, BYD suppliers)
– Industrial IoT: Manufacturing automation sensors
– Data Centers: Hyperscaler storage expansion
– Consumer Electronics: Flagship smartphones/tablets

Tenafly’s 2023 revenue reached approximately ¥320 million with 41% gross margins – significantly higher than Yongji’s 29% packaging business margins.

Yongji’s Diversification Journey

This semiconductor move continues Yongji’s deliberate evolution beyond its tobacco packaging roots. Since 2020, the company has executed a three-pronged diversification strategy:

Core Packaging Business

– Tobacco Labels: 62% of 2024 revenue (¥5.6 billion, +5.75% YoY)
– Alcohol Packaging: Major contracts with Kweichow Moutai and Wuliangye
– Pharmaceutical Packaging: COVID test kit packaging surge (2022-2023)

Despite tobacco’s steady performance, the alcohol segment declined 24.81% in 2024 due to China’s austerity policies – highlighting the need for non-cyclical revenue streams.

Pharmaceutical Breakthrough

Yongji’s Australian subsidiary MediCann became the unexpected star performer:
– Revenue: ¥1.82 billion (+75.57% YoY)
– Products: Schedule 8 medications for chronic pain/cancer
– Margins: Estimated 58-62% versus packaging’s 22-26%

The pharmaceutical success demonstrated Yongji’s ability to navigate regulated markets – experience directly transferable to semiconductor certifications.

Financial Performance and Metrics

Yongji’s 2024 results reveal a company firing on multiple cylinders:

The strategic shift to semiconductors arrives as cash reserves hit ¥1.3 billion – sufficient to fund initial integration without jeopardizing pharmaceutical expansion.

Shanghai Aiyan Lessons

Yongji’s 2021 investment in semiconductor equipment maker Shanghai Aiyan provides critical context for the Tenafly approach:
– Problem: Over-ambitious 7nm epitaxial equipment development
– Consequence: 24-month validation delays and technical failures
– Solution: Structured Tenafly deal with performance milestones before full integration

Industry Impact and Strategic Rationale

This acquisition positions Yongji squarely within China’s semiconductor self-sufficiency drive. Tenafly’s technology addresses critical import substitution needs:

National Security Alignment

– Replaces foreign controllers from US-based Marvell and Broadcom
– Supports “China Standards 2035” industrial policy
– Eligible for provincial semiconductor subsidies (Jiangsu offers 15% capex rebates)

Synergy Potential

– Cross-Selling: Automotive clients (BYD, NIO) use both packaging and chips
– R&D Integration: Tenafly’s 87 engineers + Yongji’s materials science expertise
– Supply Chain Security: Vertical integration from chip design to smart packaging

Market analysts note Yongji’s timing coincides with the semiconductor cycle bottom – equipment prices have declined 18% from 2022 peaks according to SEMI data.

Implementation Roadmap and Investor Considerations

With shares suspended until late August, investors should monitor these critical phases:

Integration Timeline

– Phase 1 (0-6 months): Regulatory approvals and management alignment
– Phase 2 (6-18 months): Production scaling and customer migration
– Phase 3 (18-36 months): Next-gen controller development

Key risk factors include Tenafly’s customer concentration (top 3 clients = 55% revenue) and potential U.S. export restrictions on semiconductor IP.

Valuation Assessment

Pre-deal metrics suggest attractive entry:
– Yongji P/E: 18.3x vs semiconductor industry average 35.7x
– Tenafly implied valuation: ¥1.9-2.2 billion (6-7x sales multiple)
– Upside: Successful integration could propel Yongji into mid-tier semiconductor valuations (25-30x P/E)

This strategic shift to semiconductors represents Yongji’s boldest transformation yet. The company leverages proven pharmaceutical diversification experience while avoiding Shanghai Aiyan’s technical overreach. As China accelerates chip self-sufficiency, Yongji’s packaging expertise and Tenafly’s controller technology could forge unexpected synergies. Investors should scrutinize the formal restructuring details upon trading resumption – particularly performance guarantees and R&D commitments. For industry observers, Yongji’s journey offers a blueprint for traditional manufacturers navigating high-tech transitions: leverage core strengths, stage investments carefully, and align with national strategic priorities. The coming months will reveal whether this packaging specialist can truly master the silicon frontier.

Monitor Yongji’s exchange filings during the trading halt for critical details on acquisition terms and integration plans. Semiconductor investors should evaluate Tenafly’s position within the storage controller competitive landscape, particularly regarding PCIe 6.0 readiness and automotive certifications. This strategic shift to semiconductors warrants close attention as China’s tech independence efforts intensify.