O-Film gets Kicked
Chinese lens and camera module producer O-Film (002456.CH) has indicated that it received notice from a specific overseas customer that it plans to terminate its relationship with the company in the 2nd quarter of this year, further indicating that revenue for the first two months of 2021 from ‘specific customers’ (assuming the same one) was up 5.52% y/y and will continue until March 31. O-film was put on the US ‘entities’ list last year and was expected to apply for an exemption in November, but accusations of forced labor violations have been overhanging since the list inclusion.
The assumption most are making is the ‘overseas’ customer is Apple (AAPL), who has been a customer of O-film for the iPhone line, with the company indicating that the ‘specific customer’ was 22.5% of net income in 2019. Further complicating the picture is O-film’s announcement that it would be selling four subsidiaries to Wingtech (600745.CH), including GDIT (pvt), which is the division that includes the plant that produces camera modules for Apple, which O-film bought from Sony (SNE) for $234m in 2017, and was responsible for roughly 1/3 of the company’s profit in 1H ’20. While a specific price was not given, the value of GDIT was to be 10x the subsidiary’s profit from overseas sales last year, which was $41.8m for the first nine months of 2020. The deal however, did not include the unit that was placed on the US ‘entities’ list.
O-Film stated that “Due to the sudden occurrence of the incident, the two parties are still evaluating the impact of the termination of specific customer orders on the transaction, and communicating and consulting with the customer. The order status after the completion of the transaction has not yet been determined,” which seems to indicate to us that if Wingtech cannot establish a supply relationship with Apple in regards to camera modules, the deal would have to be restructured. Wingtech has given O-film $46m as part of the purchase intent agreement and has been conducting due diligence in the interim.
The assumption most are making is the ‘overseas’ customer is Apple (AAPL), who has been a customer of O-film for the iPhone line, with the company indicating that the ‘specific customer’ was 22.5% of net income in 2019. Further complicating the picture is O-film’s announcement that it would be selling four subsidiaries to Wingtech (600745.CH), including GDIT (pvt), which is the division that includes the plant that produces camera modules for Apple, which O-film bought from Sony (SNE) for $234m in 2017, and was responsible for roughly 1/3 of the company’s profit in 1H ’20. While a specific price was not given, the value of GDIT was to be 10x the subsidiary’s profit from overseas sales last year, which was $41.8m for the first nine months of 2020. The deal however, did not include the unit that was placed on the US ‘entities’ list.
O-Film stated that “Due to the sudden occurrence of the incident, the two parties are still evaluating the impact of the termination of specific customer orders on the transaction, and communicating and consulting with the customer. The order status after the completion of the transaction has not yet been determined,” which seems to indicate to us that if Wingtech cannot establish a supply relationship with Apple in regards to camera modules, the deal would have to be restructured. Wingtech has given O-film $46m as part of the purchase intent agreement and has been conducting due diligence in the interim.
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