Dehao Runda's use of channels may be in vain, investors hope to stop and make peace

The power struggle between Wu Changjiang, former CEO of NVC Lighting, and Wang Donglei, chairman of Dehao Runda (002005), has drawn widespread attention while stirring deep concerns among Dehao Runda’s investors. Many investors worry that the complete breakdown of relations with Wu Changjiang will dash Dehao Runda’s plan to leverage NVC Lighting’s sales channels, further worsening the company’s already bleak business situation.

When Dehao Runda took stakes in NVC Lighting in 2012, its core aim was to seize control of NVC’s mature sales network. In an official announcement dated December 26, 2012, Dehao Runda stated its acquisition purpose clearly: The Company will actively pursue in-depth cooperation with NVC Lighting in the promotion of LED lighting products, aiming to sell its own LED products via NVC’s sound sales channels and powerful distributor network, and build itself into one of the world’s top-tier LED enterprises amid the booming LED lighting era.

The falling-out between Dehao Runda and Wu Changjiang, which even involved an assault incident, has cast a shadow over the former’s channel cooperation plans. Previously, Wu Changjiang had twice clashed with investors and been ousted from NVC Lighting, yet managed to make a comeback both times with strong backing from distributors, proving his formidable sway over the sales channels.

Back in 2005, Wu Changjiang was forced to sell off all his shares and leave the company with 80 million yuan. Afterwards, all distributors voiced unanimous support for his reinstatement, forcing the other two major shareholders to exit with 80 million yuan each. In 2012, he fell out with capital investor SAIF Partners and was compelled to step down from his posts, only to regain his position once again with the support of distributors and Wang Donglei. Some distributors commented that Wu Changjiang is generous, righteous and always ready to offer help, which is why they are firmly on his side. Recent media reports show that many suppliers of NVC Lighting remain on the fence, while quite a few still stand firmly behind Wu Changjiang. Questions have also been raised over why Dehao Runda chose Wu Changjiang as its private placement target despite his alleged 400 million yuan gambling debts.

Financial reports over recent years reflect Dehao Runda’s unsatisfactory operating conditions. In 2013, the company’s net profit stood at merely 8.826 million yuan, plunging 94.55% year-on-year, and it posted a loss of 181 million yuan after deducting non-recurring gains and losses. It suffered a loss of 35.6607 million yuan in the first quarter of 2014. Investors fear that if the company’s heavy investment in flip-chip LED business fails to yield satisfactory profits, its business predicament will be aggravated following the rift with Wu Changjiang.

Starting from 2011, Dehao Runda poured massive funds into the R&D and market launch of flip-chip products, setting a goal to become a global enterprise with top-tier R&D capabilities in both formal chips and flip chips. The company also told investors on the Interactive Easy platform that expanding production capacity would make flip-chip business a new profit growth driver in the LED chip sector. Nevertheless, it did not hold a new product launch for its self-developed Sirius-series blue LED flip chips in Guangzhou until June 8, 2014. According to its capacity expansion plan, the monthly sales volume of its LED chips and components was expected to hit 200 million yuan by the end of 2015.

Despite promising market prospects that once boosted investor confidence, the slow progress marked by only small-scale mass production this year has aroused widespread doubts. One investor questioned on the platform: The company always prides itself on its leading flip-chip technology, yet this technology is neither world-leading nor exclusive in China. It is unwise to indulge in technological superiority alone. Integrating sales channels, optimizing internal collaboration and boosting operational efficiency are the only viable ways out. The company is teetering on the verge of losses and must strive for improvement, as taxes still need to be paid even amid business deficits.

Reporters collected opinions from fifty investors via stock forums and Interactive Easy, among whom over thirty hoped the two sides could reconcile and jointly boost corporate development. Most investors are concerned that Wu Changjiang may block sales channels, leading to sluggish sales of Dehao Runda’s flip-chip products and triggering heavy corporate losses.

However, investors’ questions have received no official response. Dehao Runda suspended its stock trading starting August 8 without disclosing any reasons, leaving numerous investor inquiries unanswered. On the afternoon of August 11, the reporter contacted Dehao Runda’s securities department, whose staff refused to comment and hung up the phone immediately. An interview fax sent on the morning of August 12 also went unanswered as of press time.