Reporter: Ling Chen
Editor: Wu Yanling
The semiconductor industry is once again witnessing a dramatic “snake swallowing elephant” capital play!
Recently, Zhonglian Development Holdings (hereinafter referred to as Zhonglian Development), primarily engaged in leather fashion and mired in losses, announced its intention to acquire up to 100% of the shares of Longteng Semiconductor, a leading domestic power semiconductor company, for a maximum price of 9 billion HKD.
This transaction has caused market turbulence due to the significant price difference and business gap. One party is a “shell” company with shrinking revenue and a depressed market value, desperately needing quality assets to save its listed platform, with a market value of only 1.2 billion HKD, while the other is a semiconductor newcomer in a high-growth sector, technologically advanced but having failed its IPO.
Their combination reflects the current structural trend in the capital market: against the backdrop of stricter IPO reviews and increased market volatility, some hard-tech companies are turning to the traditional path of “backdoor listing” to seek a quicker route to capitalization.
For traditional industry “shell” companies, embracing hard technology has become a quality path for realizing asset value reassessment.
However, this highly anticipated marriage is currently only at the stage of a non-binding memorandum of understanding. From the letter of intent to the final execution, both parties still need to overcome multiple key hurdles such as due diligence, asset valuation negotiations, transaction price design, and regulatory approvals.
Loss-Making Leather Company to Transform into Semiconductor
As the buyer and listed platform in this transaction, Zhonglian Development’s operational difficulties reveal its core motivation for initiating the acquisition.
Public information shows that Zhonglian Development’s business is scattered across traditional fields such as leather products and fashion retail, but its operational situation has continued to deteriorate. The latest financial report indicates that its revenue for 2024 is only 22.249 million HKD, a year-on-year decline of 27%. In the same period of 2023, it reported a loss of 27.909 million HKD.
Even more severe is its cash flow situation: by the end of 2024, the net cash flow from operating activities was -6.439 million HKD, almost completely losing its self-sustaining ability.
For such a company with shrinking business and depleted funds, the possibility of reversing its fortunes through organic growth is almost negligible.
Acquiring a high-growth, market-prospective quality asset to achieve a transformative business transition has become its strategic choice to escape its predicament and realize valuation reconstruction.
The most notable feature of this acquisition is its thoroughness. The announcement clearly states that the acquisition aims for “up to 100% equity.” This is not a simple financial investment but a transaction structure aimed at gaining control or even a complete acquisition.
This move means that once the transaction is completed, Zhonglian Development Holdings’ main business attributes will fundamentally change, directly transforming from traditional industries such as leather fashion to the hot “semiconductor + integrated circuit” concept stock.
Image Source: Tuchong
Longteng Semiconductor Previously Withdrew IPO Application
Compared to Zhonglian Development, the hard-tech credentials and capitalization challenges of Longteng Semiconductor are also noteworthy.
As a “chain master” enterprise in the power semiconductor industry chain in Shaanxi Province, this company, established in 2009, is one of the few domestic design companies mastering advanced technologies such as super junction MOSFETs, with products widely covering golden sectors like new energy and automotive electronics.
Financial data shows that from 2018 to 2020, Longteng Semiconductor’s revenue grew from 89.0863 million to 173 million HKD, and it achieved profitability in 2020 with a net profit of 24.5273 million HKD. In the first three quarters of 2025, the company reported revenue of 614 million HKD, with a net loss of 58.6941 million HKD. Company representatives have publicly stated that they expect a year-on-year growth of up to 300% for the entire year, with a full order book for 2025.
However, the path to capitalization for this technology star has not been smooth.In 2022, after undergoing two rounds of inquiries, Longteng Semiconductor voluntarily withdrew its IPO application for the Sci-Tech Innovation Board, facing obstacles in traditional listing paths.
Nevertheless, the company has not halted its development pace. Public information indicates that the company has completed multiple rounds of financing from 2019 to 2025, with investors including state-owned enterprises like Xiteng Holdings, as well as industry players like Shaanxi Automobile Group, Shandong Railway Group, and Sanyuan Capital.
Choosing to partner with Zhonglian Development Holdings seems to be a strategic decision for Longteng Semiconductor following setbacks in capitalization. On one hand, by leveraging the already listed company in Hong Kong, it can bypass the complex IPO review process and more quickly obtain a capital platform to raise funds for capacity expansion and technology research and development.
On the other hand, the pressure from numerous institutional investors to exit is also an important consideration.Among the more than 10 institutions that participated in the company’s financing, the earliest entrants, such as integrated circuit industry funds and new energy vehicle investment funds, have been established for nearly a decade, and the need for exit may also be a significant driving force behind the transaction.
For Longteng Semiconductor, this transaction represents a strategic opportunity to leverage the capital market for leapfrog development, as well as a crucial step to alleviate the pressure of institutional exits and accelerate production line construction.
Valuation Could Reach 9 Billion HKD
It is worth mentioning that currently, the preliminary valuation range for the transaction between both parties is set between 4.5 billion and 9 billion HKD, which is a significant span.
The wide valuation range reflects that the transaction is still in a very early stage, and the final price will heavily depend on subsequent due diligence results, asset quality assessments, and complex business negotiations.
“Such a large range of flexibility is usually closely related to the design of the transaction structure, which may involve performance commitments, betting clauses, installment payment arrangements, and other factors. One possible scheme is a step acquisition, for example, first acquiring 51% of the controlling stake, and then gradually increasing the stake to 100% based on performance achievements, with different stages corresponding to different valuation levels,” industry insiders said.
If this thorough “transformation” transaction is successful, the path to value creation is clear.
For Zhonglian Development, the injection of Longteng Semiconductor, which is already profitable and has a full order book, will be able to reverse the continuous losses of the listed company, shifting its valuation logic from a negative price-to-earnings ratio to align with high-growth tech stocks.
For Longteng Semiconductor, this means successfully entering the fast lane of capital, breaking through the capital bottleneck for capacity expansion. In the future, its urgently needed 8-inch power semiconductor device manufacturing project can obtain continuous funding through tools such as additional issuance and placement.
However, all enticing capital stories ultimately must face the harsh scrutiny of reality. The collaborative vision depicted will depend on the answers to three key questions:
First, detailed due diligence has not yet begun.The company’s true profitability and other key factors will determine whether the final valuation is closer to 4.5 billion or 9 billion HKD.
Second, Zhonglian Development has been in cash flow losses for a long time; how will it pay the hefty price? If it heavily relies on issuing shares, it will lead to significant dilution of existing shareholders’ equity, and will the control of the listed company change?
Third, the key to a successful acquisition lies in integration. How will the management balance and merge, and can they truly understand and manage the technology-intensive new business? How will the core technology team of Longteng Semiconductor be bound? Industrial synergy must ultimately be reflected in tangible orders, revenue, and profit growth, rather than remaining in the announced blueprint.
This seemingly “perfect” replacement will not be written in the current memorandum of understanding but will be deeply imprinted in the company’s financial reports and market price trends in the years following the completion of the transaction. For investors, while anticipating value reassessment, it is also necessary to calmly examine the answers that will be revealed one by one in the future.
SFC
Produced by: 21st Century Business Herald
Editor: Jiang Peipei, Trainee Editor: Zhang Jiayu
Recommended Reading by 21st Century
Feitian Moutai Drops to 1580 HKD, New Leader Speaks Out
Crackdown on Cryptocurrency Trading, Central Bank Holds Major Meeting
Multiple Major Indices in A-shares Face Significant Adjustments
