JD Capital to Set Foot in the New Industry, Continuous Growth is the only Proposition of Investment

2014-04-02

On November 30th, 2013, the CSRC released the Opinions on Further Promoting Reform of the New-Shares Issuance Mechanism. Some market participants said Spring would come to market-oriented PE enterprises. In a long run, the whole market efficiency will be further improved, and its operating efficiency will be greatly enhanced as well. In the future, multiple financing channels will be available and market exposures are more selective, reducing impact of institutional constraint on the financing process. FgI九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

On the last two days of 2013, 11 enterprises, approved by CSRC, including Neway, Shannxi Coal, Xinbao, uzai.com, Nader,Wolw Pharma,TRUKING, QTONE, ASK Pharm, Sunrise Technology and Tianbao Heavy Industry, received an official document for issuing new shares, with the total trading amount of 21.4 billion yuan.FgI九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

PE enterprises are expected to quit successfully so as to animate the capital. In the future, they can pay more attention to growth of the enterprises invested. Speculative behavior and interest margin may be cleaned out. The whole industry will speed up to develop on a healthy basis.   FgI九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In a new-round reform, we have reasons to believe that the emerging industry still has potential to rise. So, How many opportunities will be created by emerging industries? The Emerging Industries made an exclusive interview with Chang Bin, vice president of JD Capital.FgI九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Reporter: How about JD Capital investment in emerging industries? How to decide whether   an emerging industry worthy of investing? What does the investment enterprise value the most?FgI九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Chang Bin: The consumption field is one of industries JD Capital has valued most. Besides, JD Capital has built its professional investment team for sectors such as service, pharmaceuticals & medical, agriculture, equipment, materials, mining and energy-saving and environment protection, and has possessed a large amount of investment cases related to enterprises in the growing stage and mature enterprises after long-term research and tracking. Currently, JD Capital has invested more than 30 enterprises from emerging industries such as energy-saving and environment protection, new energy, new materials and TME. FgI九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Emerging industries have three significant features, new products, new models, new technology or two or three combined.FgI九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Continuous growth is the only factor that determines whether to invest the emerging industries. We can understand it from the following three aspects: 1. A huge market potential for the emerging industry to develop; 2. A moderate growth rate for absorbing the capital cost; 3. An objective ROIC owned by the industry. Among them, ROIC is the most important factor we consider. The opportunity cost will stay higher if the ROIC can not be guaranteed, causing that other investment opportunities won’t be seized.FgI九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Reporter: How do you select the enterprise in the selected emerging industry?FgI九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Chang Bin: Growth is the only standard to select the enterprise, which is similar to the traditional industry. Of course, we also need to look at other four elements including team, business model, competitive pattern and industry. Compared with traditional industries, the emerging industries evolve and develop on a fast basis. Their competitive patterns are seriously homogeneous and extremely unstable. The business model is always under modification and even develops disruptively. FgI九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

The market never lacks business models. New changes will be copied and imitated soon. What will not change are entrepreneurs and their teams In terms of investment in emerging industries, it is more important to judge the team. We always prefer entrepreneurs who can make quick response to market change and continue to think over and adjust their business model, are full of energy, able to work under great pressure, rich in experiences and have strong ability of execution and judgment.FgI九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Reporter: Would you please share experiences in investing the emerging industries?FgI九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Chang Bin: The accurate investment ability has become the key standard to evaluate the investment enterprises. Accuracy is based on long-term tracking and rich experiences. For example, JD Capital has been working on the military industry. JD Capital is one of the few investment enterprises that take the military enterprises as their priority investment targets. We have invested military equipment enterprises and electronic enterprises such as RML, Titan Micro Electronics, Huari Communication and Xinzhu Firing. FgI九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

The ecological environment for military equipment enterprises is relatively closed. The business model is hard to understand. The period of technology evolution is quite long and not so easy. All above special features require that the investment institution must have extensive experiences, resist loneliness, perform a long-lasting and orderly trace, and make accurate, quick judge. For example, it only took JD Capital 18 days to set up the project and finally invest in TitanMicro Electronics, which is based on our long-term exploration and accumulation as well as a great large of external traces and research.  FgI九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Reporter: Compared with traditional industries, is there any special requirements when PE/VC invests the emerging industries?FgI九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Chang Bin: As said above, the emerging industries has three new features, new products, new business technology and new technology. Compared with other industries, it takes more time to track the projects, and it is not easy to make a right judgment. In addition, revenue and risk are both high. FgI九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Firstly, the maturity and examination of a technology need cooperation of technology, product, personnel and market. Take smart phones for example, Microsoft put forward with smart touch screen in 1980’s. However, such technology has seen a substantial development after 2000 due to support of smart chips, rapid development of 3G bandwidth, and mutual effect of the network market and strong cultivation of personnel. Accordingly, finding the right time to invest the emerging industry is the first tough thing.FgI九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Secondly, the second tough thing is hard to make a right judgment. Many enterprises are still in their earlier stage of development, so they face high uncertainty in the future.FgI九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In terms of investment institutions, one of the important reference factors is to judge and evaluate whether revenue matches risks. In recent years, the projects related emerging industries are popular with the capital market. If the investment enterprises participate at the early development stage, the investment cost will generally increase at the growth or mature stage. The emerging industry of the enterprise invested changes rapidly, usually resulting in higher investment risks. In addition, in terms of presence of the secondary market, the emerging industries stand for the development trend and main model in the future, and the evaluation of the secondary market is higher in general, so higher risk and higher revenue co-exist in such industries. Poor investment judgment or bad development of the enterprise invested will make sunk costs very high.FgI九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Reporter: What plan has JD Capital made for future investment? FgI九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Chang Bin: JD Capital will still pay great attention to the emerging industries. In a short term, we prefer to invest in such emerging industries as IC, electronic information, smart equipment and military electronics.   FgI九鼎投资(600053.SH)_上交所私募股权投资领域上市公司


FgI九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

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