Tan Xuguang: Using Capital to Promote Industrial Integration

“Modern entrepreneurs must be driven by two-wheel drive of product management and capital management.” Tan Xuguang uses professional vocabulary to sum up his experience in leading Weichai Power. He said that 20 years ago, Chinese entrepreneurs valued product development. In the past 10 years, most entrepreneurs only focused on product management. However, Weichai has been able to lead one step in the industry because he learned while managing products. Capital management, "This is an infinitely enlarged space."

"We have conducted quite thorough and comprehensive research on the industry."

On August 8, 2005, Weichai beat rivals Wanxiang, Xifei International, Shanghai Electric Group, Yutong Bus and China National Heavy Duty Truck to buy a 28.12% stake in the Hunan Torch at a price of RMB 1,023.38 million. This is a landmark event that changes the pattern of China's heavy-duty truck industry. It is also a key turning point in the development history of Weichai.

Talking about this acquisition, Tan Xuguang recalls that the process of acquisition is like a thriller and is full of suspense and wisdom. At that time, the assets of Delong were taken over by Huarong Asset Management Co., Ltd. and were responsible for the reorganization and tendering. He judged that Huarong must openly invite tenders through the market. However, due to the earlier contact between Wanxiang Group and Huarong, Huarong may formulate a The bidding program. Sure enough, Huarong proposed in the bidding that all bidders must pay a deposit of 200 million yuan within 10 days and enter the remaining amount into the Huarong account within 10 days after the successful bid. "Much like this merger, the fastest domestic 30 days, 45 days abroad, plus the board meeting, a total of two months or so to go to the program." Tan Xuguang analysis, this clause is obviously tend to universal, the purpose is Let other companies go out.

On the 2nd week before the bid, on August 2, Tan Xuguang surprisingly invited local large state-owned enterprises such as Shandong Haihua and Weifang Yaxing to jointly register a company “Weifang Investment” as the acquisition entity. Through three capital increases, the registered capital has reached 16.38 billion yuan, of which Weichai accounted for 45% of the equity. In this way, Weichai avoided many of the procedures for the acquisition of Hong Kong listed companies. "In such a competition, in the face of such a competitor, there is no point at all, and it will lead to the outflow."

"From the result, I am bidding high; from the judgment, I am correct; from a strategic point of view, I am forward-looking." Tan Xuguang said. In the third quarter of 2005, when the Hunan Torch was merged, the heavy truck industry in China was at the lowest level, and the M&A price was very low. After the completion of the merger, the industry recovered fully and became the best sub-sector in the automotive industry. “At that time, I invested RMB 1 billion to acquire the torch of Hunan. Others called me 'tan daring' and can’t buy 4 billion yuan at the time. In the final analysis, we conducted quite thorough and comprehensive research on the industry and grasped the development trend of the industry. "Tan Xuguang said that the profits made by the Hunan Torch in the Group's headquarters in 2007 exceeded 1 billion yuan, and this alone exceeded all the initial investment.

"I don't do superficial articles."

The acquisition of the Hunan Torch is not simply because of cheap prices. More importantly, because the Hunan Torch Group owns high-quality assets such as Shaanxi Heavy Duty Truck, Fast Transmission and Hande Axle, Weichai has transformed from an independent engine company into a set. A powertrain company that integrates core components such as engines, transmissions, and axles. “I have proposed two concepts, one is powertrain, and the other is synergy effect where one plus one is greater than two.” Tan Xuguang summarized that the assembly is the core technology of the automotive industry and the most profitable part. "Engines, axles, gearboxes, I passed on the concept of an assembly to customers. The competitiveness of Weichai increased. Just like playing crickets, I used to be a fist to fight. Now I have two fists to play together. On the other hand, after the acquisition, Weichai can provide technical resources, sales networks, and other synergistic resources and financial support from the group level to subsidiaries such as Shaanxi Heavy Duty Truck, and the sales growth of its subsidiaries will in turn drive the entire group's profit growth. .

From an international perspective, heavy-duty truck manufacturers such as BENZ, VOLVO, MAN, IVECO, and RENAULT all have their own dedicated engine production plants. Will Weichai have a future? How to expand to the vehicle field? Tan Xuguang gave a negative answer: “At the current stage in China, the average gross profit rate of the vehicle is about 8%, and the average gross profit margin of our production engine and transmission is 25-30%. To do business is to make money. I don't do superficial articles."

He analyzed that the concentration of China's heavy-duty truck industry is not rising but is declining. At present, the industry's first corps is FAW, Dongfeng Motor and China National Heavy Duty Truck, each accounting for 20% of the market; the second corps is Shaanxi Heavy Duty Truck, Chongqing Heavy Duty Truck, Beiqi Foton and North Benz, which together account for 40% of the market; The three legions of Anhui Jianghuai Automobile, Hualing Automobile and Shanghai Huizhong Automobile are still in the stage of investment growth. The capacity of the heavy truck industry in China represented by the three major military groups reached 700,000 units. In 2007, the sales volume of heavy trucks in China was only 480,000. In 2008, with the implementation of the National III standard, sales volume may decline. Tan Xuguang predicts that as the situation that heavy truck production exceeds sales will intensify, the industry competition will become more and more cruel, and the gross vehicle gross profit rate will be reduced from the current 8-10% to 5-6%, thus making weak companies unable to invest funds. For R&D, the industry will face a reshuffle. “The entire vehicle industry will certainly undergo a restructuring, and the time will not exceed 2012. At that time, we need to re-examine the strategy.” Tan Xuguang said that independent engines and assembly companies still have a lot of room for development within 5-10 years. He pointed out that although there are a number of automakers that have announced their plans to develop their own engines, so far no one has done so. It takes at least 3-5 years for the engine to fully adapt to the market from development. "What kind of market would China be at that time? No one can see that far."

From Tan Xuguang's point of view, the current competition in the Chinese auto industry is largely a homogenous competition, which brings great disadvantages to the development of the industry. “Chinese companies rarely have products that 'I have you not'. If I have you too, but I’m better than you, it does not mean that my profit margins are even greater. Our Chinese manufacturing companies should focus their efforts on profitability. And core technology upgrades."

"The most important thing in the capital market is good faith."

Tan Xuguang is a technical backgrounder. Before 1987, he mainly engaged in product technology work. He switched to international trade from 1987 to 1997. In 1998, he began to serve as the director and chairman of Weichai. “The product is ten years, the market is ten years, and the business is ten years. This is the past thirty years of my life."

Tan Xuguang said that when Weichai was re-listed in 2002, the domestic market had not yet carried out a share reform, so he insisted on listing in Hong Kong. "Very few people knew of Weichai before 2002, but it was known to the world in Hong Kong. The top funds in the world are our shareholders."

Talking about the understanding of the capital market, Tan Xuguang emphasized: "An entrepreneur in the capital market is important in integrity and truth telling. Everyone has personality, but you cannot 'fudge' other people." He said, 2005 mergers and acquisitions When the torch was in the torch, the domestic fund managers did not trust him, but by the end of 2006, the fund managers realized that his previous promises were fulfilled and they expressed their trust in him. "For four consecutive years, I promised in the capital market that there was only a super-low drop. This is what I learned from the international capital market." Tan Xuguang said that because the performance continues to exceed expectations, some funds are now asking him: Is the target saying? Have you been conservative? "I said that I would be responsible for this number."

Another example of “telling the truth” is about the prospects for the heavy-duty truck industry in 2008. Tan Xuguang’s views are very different from those of most analysts. "The heavy truck industry will definitely decline next year," Tan Xuguang asserted. According to his analysis, China's heavy truck industry will implement State III standards from January 1, 2008. According to the experience of other countries in the world, the level switch will cause sales volume to drop by about 50%, and it is very difficult for China to spare itself. “So I kept saying that I was cautious about the 2008 market. The capital market can't lie, cheat once, and no one believes you the second time. We don't do this.” However, he stressed that Chai has been fully prepared for the industry's adjustments and is now switching to a 12-liter high-power engine. This is a unique product of Weichai, with high prices and gross profit margins. Industry adjustment may provide Weichai with a new opportunity to expand its lead.

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