Estun Technology: Heavily indebted yet spending lavishly, aggressively expanding amid high risks

The company's Q3 2020 financial report shows short-term borrowings of RMB 920 million, long-term borrowings due within one year amounting to RMB 350 million, and long-term borrowings totaling RMB 870 million—its combined short- and long-term borrowings far exceeding its full-year revenue! Its debt-servicing capacity is worrisome: interest expenses reached RMB 67.66 million—over two-thirds of its net profit for the period. The cost of capital is simply too high. II. Where Is the Money Going? For investors, the income statement serves only as a reference; the truly valuable document is the cash flow statement. The cash flow statement clearly reveals the company’s actual fund movements and enables assessment of its “real” profitability. From an operating cash flow perspective, since 2019 the company’s profitability has been commendable: net operating cash flow exceeded RMB 100 million annually, and in the first three quarters of 2020 it also surpassed RMB 100 million—higher than net profit. This indicates that most goods sold were paid for in cash, with even substantial advance payments received. If the company is genuinely profitable, why does it need to borrow so heavily? The cash flow statement reveals that, aside from routine operations, the company’s three largest cash outlays in recent years are: (1) RMB 447 million spent on acquiring subsidiaries during Jan–Sep 2020; correspondingly, the balance sheet reflects over RMB 1 billion in goodwill (payment not yet fully settled); (2) fixed asset acquisitions—since 2015, annual investment in fixed assets has ranged between RMB 100–200 million; and (3) generous dividend distributions—dividends totaled over RMB 100 million each in 2018 and 2019, and RMB 60+ million had already been distributed in Jan–Sep 2020. While interest expenses exceeded RMB 60 million, the company continued distributing generous dividends—a decision that left Xingkong Jun utterly baffled. According to Tonghuashun iFind data, the top three shareholders—Nanjing Parrest Technology Co., Ltd., Chairman Wu Bo, and Nanjing Estun Investment Co., Ltd.—collectively hold over half the shares; thus, the majority of dividends flows directly into the pockets of major shareholders. III. Aggressive Expansion Amid High Risk In February 2016, the company acquired a 20% stake in Euclid, whose core technology lies in robotic 3D vision; in June and August 2016, it acquired Puleikes and Nanjing Fengyuan respectively, enhancing its system integration capabilities; in September 2017, it acquired a 50% stake in M.A.I., entering the high-end system integration sector; in February 2017, it acquired TRIO, strengthening motion control capabilities; in July 2017, it acquired a 30% stake in Barrett Technology, boosting micro-servo system capabilities; in August 2019, it acquired Cloos—the global leader in welding robots; and on March 18, 2020, the company signed a “Major Asset Purchase Agreement” with its controlling shareholder Parrest, acquiring 51% of Nanjing Dingpai for RMB 408.98 million. Through these capital maneuvers over recent years, the company’s asset scale and revenue have continuously expanded—but so too has its risk exposure, notably via goodwill. As of the Q3 2020 report, the company’s goodwill stood at RMB 1.486 billion.

[Blood-and-tears compilation] 2026 M&A Research Report Collection: 112 reports in total—save now! (Download link included)

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