TUS International Limited (the “Company”) and its subsidiaries (collectively the “Group”) is principally engaged in production and sale of automotive related products, car trading and provision of financing service for leasing motor vehicles and equipment.
2016 was a year of instability and surprises in both global political and economic environment. Following the BREXIT referendum in June 2016, the presidential election in the United States (the “US”) in November 2016 and the young administration of the US still taking shape, geo-political tensions and market volatility continues in 2017. In China, government authorities have tightened the capital controls on remittance and foreign exchange since the beginning of 2016. Renminbi has continued to depreciate against Hong Kong dollars and US dollars in the course of the last 18 months. All these uncertainties post new challenges to the business environment.
We are confident that the competitive strength of the Group is two-fold: (1) “TUS” in the name of the Company, which is the acronym of Tsinghua University Science-Park, represents the strong support from Tsinghua University and its extensive resources to the Group; and (2) the experience and dedication of our strong management team which is testimonial to the ability of the Group to attract and retain new talents.
Transforming our businesses
In 2016, we have undertaken a critical review of our businesses and realigned our resources. In March 2016, the Group disposed of the entire equity interest in Smooth Ever Limited (together with its subsidiaries, the “Smooth Ever Group”) which were identified as traditional automotive components manufacturing business with relatively low gross profit margin and had been operating at a loss. Although the disposal resulted in a reduction of our turnover in relation to the sales of traditional automotive electronic products and safety spare parts, it attributed to a gain on disposal of subsidiaries to the Group in 2016. Apart from streamlining the existing businesses, we have been actively seeking new investment opportunities in the midst of great technology transformation in the automobile industry with a view to generating sustainable and better returns to the shareholders of the Company.
On 3 March 2017, the Group entered into a series of agreements to acquire a minority stake of approximately 6% equity interest in Suzhou Zhihua Automobile Electronics Co., Ltd. (“Suzhou Zhihua”), which focuses on advanced driver assistance system (“ADAS”). Please refer to the announcement published by the Company on 3 March 2017 for further details. Suzhou Zhihua was founded by an alumnus of Tsinghua University in January 2012. The Group further provides financial assistance to Suzhou Zhihua with a view to increasing our stake to around 17.5% equity interest (as enlarged by the proposed subscription in the capital increase of Suzhou Zhihua pursuant to the relevant agreement) in Suzhou Zhihua. We have a deep conviction that the automobile industry is undergoing a transformation, and we believe the investment in Suzhou Zhihua is significant to the Group since its product is at the core of this paradigm shift. Automotive manufacturers are not only building better cars in an ever-competitive market, but many of them are also building a “computer on four wheels” which will heavily rely on green energy, and more importantly internet of things (IoT). Suzhou Zhihua is well positioned to take advantage of the dynamics in the industry and has been branching out to other areas, including cameras with surround view parking assistance systems, lane departure warning systems, forward collision warning systems and other ADAS technologies. We shall continue to seek strong collaborations with Suzhou Zhihua’s management and its shareholders.
Finance Lease Business
We completed the acquisition of Optimus Financial Group Limited, which is principally engaged in the business of providing car trading and finance lease of motor vehicles and equipment via its subsidiaries, in December 2015. The finance lease business contributed approximately HK$90.2 million to our revenue in 2016, representing an increase of about 13 times as compared to 2015 due to an increase in interest element of the lease receipts on lease receivables when it falls due and a full year of operation being accounted for in 2016. In the second half of 2016, we have made significant progress in increasing and diversifying the leasing portfolio in order to cover automobile inventory financing and equipment financing. Funding of the finance lease business primarily comes from overseas (either by way of equity or debt) which is denominated in Hong Kong dollars or US dollars, and is therefore subject to foreign exchange exposure. Stringent capital controls since early 2016 and the lengthened approval procedures had made it more important to seek new domestic funding to support further portfolio expansion.
In June 2016, we entered into an agreement with Suzhou Yadu Environmental Protection Technology Co. Limited and Suzhou Yadu Cloud Technology Co. Limited (“Yadu Cloud”) which is specialised in research and development of car-carried purifiers and related air technology. Please refer to the announcement published by the Company on 30 June 2016 for further details. We have made capital contribution to Yadu Cloud. Pending the capital contribution from our joint venture partner and approvals from authorities, Yadu Cloud will be in a position to commence businesses of the development, manufacturing, distribution and sales of car-carried purifier in due course and we expect that the formal transfer of the car-carried purifier business from Yadu Environmental Protection Technology Co. Limited to Yadu Cloud, which being one of the conditions precedent to the capital increase, will be completed in the first half of 2017.
OUTLOOK AND FUTURE PROSPECTS
The business environment, both domestically in China and globally, shall be challenging throughout 2017. Chinese economy is believed to grow steadily, but at a slightly slower pace. The anticipated US interest rate hike will continue in 2017. However, we believe that the Group is well positioned, with the backing of a continuous growing Chinese economy and the support from our major shareholder, to enjoy reasonable growth in the long run. We had a good start in 2017 by raising a total of HK$300.0 million, which is mainly from the market, via the proposed issuance of convertible bonds as announced in March 2017. Tuspark Venture Investment Ltd. (“Tuspark Venture”), a substantial shareholder of the Company and a wholly-owned subsidiary of Tus-Holdings Co., Ltd. (“Tus-Holdings”), is one of the subscribers taking up one third of the issuance. The convertible bonds issuance is expected to be closed in second quarter of 2017. This fund-raising exercise will help us replenish our working capital and provide dry powder to make further accretive acquisitions.
In June 2016, we brought in two senior members to join the Company, namely Mr. Shen Xiao and Mr. Yang Ming, as the President and Chief Operating Officer, respectively. Both Mr. Shen Xiao and Mr. Yang Ming graduated from Tsinghua University and bring in a wealth of experience in the financial and industrial sectors to the Group. Moreover, we have also started building an international merger and acquisition team. The primary goal of the team is to evaluate the latest automotive acquisition opportunities overseas, particularly in the US and Europe, and try to bring the business to expand in the China market. These significant hires are testimony of the Group’s commitment in developing our existing business as well as looking for new opportunities. We shall continue to invest in various business targets in order to ensure sustainable growth in the value of the Company.