Shanghai Longcheer Technology Provides In-Depth Profit Forecast and Valuation Details for 60% Acquisition of KC Precision and Geeia Metal

Key Highlights

• Discloseable Transaction: Acquisition of 60% equity interest in KC Precision Technology (Dongguan) Co., Ltd. and Dongguan Geeia Metal Products Co., Ltd. by Shanghai Longcheer Technology Co., Ltd. (“the Company”).
• Valuation Date: The valuation is as of December 31, 2025, with the report issued on March 28, 2026.
• Market Value: 100% market value of the Target Companies is approximately RMB 928.98 million (HK\$1,060.93 million).
• Profit Forecast: Discounted cash flow (DCF) method under the income approach adopted, constituting a profit forecast under Hong Kong Listing Rules.
• Appreciation: KC Precision’s equity value appreciates by 427.5% and Geeia Metal by 18.59% post-acquisition.
• Major Customer: KC Precision’s significant profit growth attributed to becoming a supplier to a major North American multinational, providing revenue stability and growth prospects.
• Independent Validation: Valuation calculations confirmed by HLB Hodgson Impey Cheng Limited; Board confirms forecasts made after due enquiry.
• Clarification: Corrected historical profit figures for both target companies.

Detailed Financial and Operational Insights

Valuation Methodology and Rationale

The Company engaged Shenzhen Pengchen Real Estate Land Asset Appraisal Co., Ltd. as the independent valuer. The income approach, specifically the discounted cash flow method, was used instead of the asset-based or market approaches, due to:

• Significant intangible assets (human capital, client relationships, proprietary technology, brand equity) not captured on the balance sheet.
• Lack of comparable public companies and observable transactions for privately held, smaller-scale targets.
• Predictable, measurable, and sustainable future earnings due to recent business developments, notably the supply relationship with a major North American customer.

KC Precision – Financial Projections and Valuation

• Free Cash Flow to Firm (FCFF): Valuation based on FCFF, discounted using a weighted average cost of capital (WACC) of 10.95%.
• Net Profit Projections: Expected net profit of RMB 132.79 million in 2025, declining and stabilizing around RMB 111.92 million by 2030 and perpetuity.
• Revenue Projections: Revenue for 2025 is RMB 486.84 million, decreasing in 2026 and then rising to RMB 541.39 million by 2030, with a 3.5% annual growth rate from 2028 to 2030, and 0% perpetuity growth post-2030.
• Terminal Value: Calculated with a 0% perpetual growth rate, reflecting industry practice for mature companies.
• Equity Value: Post-valuation, total equity value is RMB 911.94 million, up from RMB 172.87 million, an increase of 427.5%.
• Key Assumptions: Stable macroeconomic and legal conditions, major customer provides order stability, capital expenditure of RMB 200 million in 2026-2027 (40% financed by long-term debt at 3.5%), and sustained high margins (mid-30% to high-30% range).

Geeia Metal – Financial Projections and Valuation

• Free Cash Flow to Equity (FCFE): Valuation based on FCFE, discounted at a cost of equity (CAPM) of 11.10%.
• Net Profit Turnaround: Net loss of RMB 410,470 in 2025, projected to turn to a profit of RMB 441,300 in 2026 due to normalization of inter-company allocations and increased orders.
• Revenue Growth: Moderate revenue growth—1% in 2026 and 2027, 0.5% in 2028-2030; revenue stabilizes at RMB 9.42 million.
• Equity Value: Post-valuation, total equity value is RMB 17.04 million, up from RMB 14.37 million, an increase of 18.59%.
• Key Assumptions: Steady macroeconomic and legal environment, capital expenditure matches depreciation, gross margin of 8%, operating costs over 90% of revenue.

Sensitivity Analysis

The report presents sensitivity analysis on valuation results for both companies, showing material impact from changes in discount rates and revenue growth assumptions. For KC Precision, a 1% decrease in discount rate and a 1% increase in revenue growth can increase valuation by RMB 156 million (over 17% upside to base case). For Geeia Metal, the impact is less pronounced but still material for a business of its size.

Price-Sensitive and Shareholder-Relevant Issues

• Significant Upside in KC Precision’s Equity Value: The acquisition increases the value of KC Precision’s equity by over 427%, a major value driver that could positively affect Shanghai Longcheer’s share price.
• Major Customer Concentration: KC Precision’s future profits are heavily reliant on a major North American customer, providing stability but also concentration risk—any change in this relationship could significantly impact projections and valuations.
• Correction of Historical Financials: The company clarified and corrected previous errors in the historical profit disclosures for both KC Precision and Geeia Metal, which could affect investor perceptions of past performance and the baseline for future growth.
• Independent Third-Party Validation: The discounted cash flow calculations were independently validated by a reputable accounting firm, and the board confirmed that the profit forecast was prepared after due and careful enquiry, boosting credibility of the forecasts.
• Assumptions Risk: The projections rely on key assumptions about stable macroeconomic conditions, customer demand, and regulatory environment. Any deviation could have a material impact on actual results and thus the company’s valuation.
• Capital Expenditure and Financing: Significant capital expenditures are planned for 2026 and 2027, partially financed by debt, impacting leverage and interest expense profiles.

Clarifications and Corrections

The Company issued a clarification correcting errors in previously disclosed profit (loss) before and after taxation for both KC Precision and Geeia Metal for 2024 and 2025. These corrections provide a more accurate financial baseline for investors evaluating the impact of the acquisition.

Expert Opinions and Consents

HLB Hodgson Impey Cheng Limited (Certified Public Accountants) provided a comfort letter confirming the arithmetic accuracy of the discounted cash flow forecasts. Shenzhen Pengchen Real Estate Land Asset Appraisal Co., Ltd. acted as the independent valuer. Both parties confirmed their independence and lack of interest in the Group.

Board Confirmation

The board of directors has reviewed the bases and assumptions for the profit forecast and confirmed, after due and careful enquiry, that the forecasts were properly prepared and reasonable.

Conclusion

This acquisition and profit forecast represent a significant potential value driver for Shanghai Longcheer Technology. The sharp appreciation in equity value for KC Precision, the turnaround in Geeia Metal, and the validation by external experts suggest that the transaction could be share price positive, subject to realization of underlying assumptions and continued performance of the major customer relationship. Investors should closely monitor future performance and any changes in the disclosed assumptions or customer concentration risk.

Disclaimer

This article is for informational purposes only and does not constitute investment advice. All forward-looking statements and profit forecasts are subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from those anticipated. Investors are advised to make their own independent assessments and consult their professional advisors before making any investment decisions. Shanghai Longcheer Technology Co., Ltd. and the reporting accountant firms cited are not responsible for any actions taken based on this article.

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