Zhongyan Dadi to acquire 60% of PCB drill bit maker Xinhuan Yu for 240 mln yuan

September 27, 2024 — Zhongyan Dadi (003001) announced on the evening of September 27 that it has officially signed a Share Acquisition Agreement and a Performance Commitment and Compensation Agreement with Shenzhen Xinhuanyu Precision Technology Co., Ltd. ("Xinhuanyu"). The company plans to invest a total of RMB 240 million to acquire a 60% stake in Xinhuanyu, marking its formal entry into the PCB precision drill sector.

The acquisition represents a substantive step for Zhongyan Dadi, which has long focused on high-end geotechnical engineering, as it expands into the precision manufacturing field.

RMB 240 Million for Controlling Stake, Performance Commitment Aligns Interests

According to the announcement, the transaction adopts a combination of "equity transfer + cash capital increase." Zhongyan Dadi will pay RMB 90 million to acquire a 36% stake from existing shareholders (diluted to 22.5% post-capital increase), and simultaneously inject RMB 150 million in cash to obtain an additional 37.5% equity stake post-capital increase. Upon completion, the company will hold a total of 60% of Xinhuanyu, making it a consolidated subsidiary.

The pricing mechanism is differentiated:

• Founding shareholders participating in the performance commitment: 20.21% equity valued at RMB 64.737 million
• Fund shareholders not participating in the performance commitment: 15.79% equity valued at RMB 25.263 million

The transaction will be funded through the company's own funds and self-raised capital. The announcement also noted that the total equity value of Xinhuanyu, assessed using the income approach, is RMB 254.804 million, with all parties agreeing on a pre-investment valuation of RMB 250 million.

Performance Commitment and Risk Mitigation

A key feature of the deal is the performance commitment and risk protection mechanism. Founding shareholders Li Kunlun and Weijing Investment have committed that Xinhuanyu's cumulative net profit attributable to the parent (excluding non-recurring gains/losses) from 2026 to 2028 will be no less than RMB 100 million, with annual minimum targets of:

• 2026: RMB 5 million
• 2027: RMB 30 million
• 2028: RMB 45 million

The agreement includes a dual compensation mechanism triggered annually and cumulatively at the end of the period. Compensation is triggered if:

• Annual realized profit falls below 90% of the minimum target for that year, or
• Cumulative realized profit at the end of the period falls below RMB 90 million

Financial Performance of Xinhuanyu

| Period | Revenue (RMB) | Net Profit Attributable to Parent (RMB) | |--------|---------------|----------------------------------------| | 2025 | 39.663 million | 1.726 million | | H1 2026 | 28.292 million | 1.960 million |

Profitability has shown steady improvement. Post-acquisition, Xinhuanyu will be integrated into the listed company's governance structure, with Zhongyan Dadi appointing directors, supervisors, and a chief financial officer.

Strategic Positioning in the AI Computing Supply Chain

The acquisition is a strategic move by Zhongyan Dadi to anchor itself in the precision manufacturing sector. Xinhuanyu is a specialized and innovative enterprise focused on PCB precision drills and milling cutters. Key highlights include:

• Annual production capacity: 80 million drill bits
• Minimum batch diameter: 0.03 mm
• Aspect ratio: Up to 50x
• Patents: Over 30
• Capabilities: Provides comprehensive coating process solutions

PCB Drill Market Growth Driven by AI

The choice of the PCB drill sector is underpinned by a clear upward cycle driven by the AI computing wave. PCB precision drills are high-barrier, core consumables in the upstream supply chain, directly determining the drilling accuracy and yield of high-end boards.

Key market drivers include:

• AI server PCB substrates are upgrading to higher grades, requiring exponentially more drill bits to process the same number of substrates
• Growing demand for high-end PCBs and the application of coating technologies are further boosting demand for premium drills

According to Frost & Sullivan, the global PCB drill market is projected to grow from RMB 4.5 billion in 2024 to RMB 6.0 billion in 2025, reaching RMB 9.1 billion by 2029, representing a compound annual growth rate (CAGR) of approximately 15%.

Building a Dual-Core Business Model

For Zhongyan Dadi, this acquisition is a critical step in optimizing its business structure and establishing a dual-core business model. By entering the PCB precision manufacturing track, the company aims to cultivate a second growth curve. The stable cash flow and growth potential of precision manufacturing are expected to complement the cyclical nature of its geotechnical engineering business, enhancing overall risk resilience.

From deep expertise in high-end geotechnical engineering to a cross-sector expansion into precision manufacturing, Zhongyan Dadi continues to extend its boundaries in line with industrial upgrading and national strategic directions. Leveraging the capital platform and governance advantages of a listed company, combined with Xinhuanyu's technological and production capabilities, the company is well-positioned to seize the window of opportunity for domestic substitution of high-end PCB drills and unlock broader long-term growth potential.