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Joyson Electronic creating as a Giant of Global Automotive Safety

Date:2017-11-15 Author:Cui Xiaosu Source:China Securities Journal

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Joyson Electronic has been moved forward on the way to acquire the giant of global automotive safety airbag Takata,  Joyson Electronic announced on 11th.November that the board of director had been empowered the president of the board to sign a seriesof assets agreement with Takata Corporation except for certain assets and operations related to manufacturing and sale of phase-stabilized ammonium nitrate airbag inflators.  

In recent years, through a series of oversea acquisition in the field of Intelligence Driving, Automobile Safety, New Energy Automobile Management System as well as high end Car Function Key Assembly, the revenue of Joyson Electronic has been increased from 200 million in 2006 to 18.6 billion in 2016. Acquisition and integration the auto parts suppliers of high quality is the driving factor of the increase.

Hunting oversea assets

According the announcement, Joyson Electronic intend to acquire the assets of Takata  except for the business which related to the ammonium nitrate airbag inflators through his sub-company KSS,  in the meantime KSS will also sign the relevant agreements with existing customer groups to ensure that they are no longer at risk with the risk associated with Takata’s global airbag recall and the sustainability of future orders. The underlying transaction value of the target asset is expected to be no more than 1.588 billion us dollors.

Public data shows, takada was founded in 1933, is one of the world's largest automotive airbag manufacturers, the main products include automobile safety belt, airbag system, steering wheel and other non automotive safety and electronic products. Takata has a long-term and stable cooperative relationship with BMW, Mercedes Benz, Volkswagen, Ford, general motors, TOYOTA, Honda and NISSAN.

Due to the flaws in the design of the gas generator, Takata caused at least 17 people died and more than 180 people were injured. The recall involves about 100 million airbags worldwide, including Ford, Volkswagen, Tesla and other 19 car manufacturers. The continuous recall and compensation made Takata overwhelmed and had to apply for bankruptcy protection. Over the past ten years, Takata’s revenue scale is between 25 billion to 40 billion yuan, in the year of 2016 the revenue has been reached 40.9 billion yuan. After the year of 2015, affected by product recall, net profit declined significantly, net interest rate was about 5%. Joyson Electronic hunters Takata at this point of time causes by marketing concerns, that whether there will be the risk of “punishment for being related”.

Relevant responsible person said Joyson electronic, cooperation memorandum clear, KSS ‘s goal is assets acquisition  after Takata’s bankruptcyand will not acquire Takata itself, the move is in order to avoid debts and litigation risks. Takata currently operates normally, but is affected by litigation. These people said that as long as the problem airbags cut off, Takata is still a high-quality enterprise.

So far, automotive safety business has become the main business of Joyson Electronic. It claims that if the purchasing of Takata implemented, KSS will further enhance the active and passive safety technology at present and expanse effectively of its production capacity to meet the needs of new orders. At the same time, it will enter the Japanese market and Japanese vehicle manufacturers supply system to enhance the company's position in the global automotive supply chain and becoming the world's leading supplier of automotive safety systems.

Rewrite supplier pattern

In March 2016, Joyson electronic acquired US company KSS with $920 million. KSS main business includes active safety, passive safety and special products, its automotive safety business has a share of 7% in the global market with ranking fourth in the world. In 2016, KSS became a supplier of Tesla, and entered the Japanese SUZUKI and Nissan Renault supply chain. In terms of independent brands in China, KSS has developed Geely, GAG and BAIC as other suppliers on the basis of SAIC and Changan. In 2016, KSS has accumulated nearly $5 billion of new orders.

Due to the high technical barriers to the industry and the stability of the vehicle safety requirements, the global automotive safety market share is relatively fixed and concentrated. At present, four companies monopolize the global automotive safety market. Among them, Autoliv of Sweden, Takata of Japan, TRW of United States and KSS accounted for 39%, 20%, 17%, 7% share of the market , the industry presents monopolistic competition in the market structure. After completion of the acquisition, KSS and Takata will occupy 27% of the global automotive safety market share, and will narrow the gap with the leader of the industry Autoliv.

According to public data, the global automotive safety market size is $24.1 billion. Among them, the passive security market sized of $21.7 billion, active security has a scale of $2.4 billion; The global security market will grow to $28.4 billion by the year of 2018. Among them, the scale of China's automobile safety market reached 5.8 billion US dollars, with an annual compound growth rate of 7.5%.

In recent years, through the acquisition of  QUIN, KSS, TS and other overseas enterprises, Joyson Electronic stands on the shoulders of giants as the rapid development of intelligent driving system, vehicle safety system, new energy vehicle management system and the function of high-end car assembly and other global suppliers. In the first three quarters of this year, the company's operating income and net income increased by 65.5% and 119.8% respectively, mainly due to the combination of KSS and TS. At the same time, the access to many new customer orders.

Securities analyst believes that if the acquisition of Takata goes sucessfully, the company's revenue is expected to reach 70 billion yuan. The key to the future lies in the synergy of various businesses and company's ability to integrate and upgrade.