Polarised view

Zheng: rags to riches, literally

Cedar trees symbolise strength and eternity in Chinese culture. In Mandarin they are described as shanshan and the name is an apt one for a company set up by Ningbo businessman Zheng Yonggang in the late 1980s.

Over the last three decades, Zheng has made his name by anticipating new trends well before the competition. In the 1990s, he was one of the first to franchise his clothing business – named Shanshan – after developing one of China’s first designer suit brands. He went on to become one of the first private sector entrepreneurs to list his firm in 1996.

A decade later, Zheng moved away from clothing towards rare earths and until last year Shanshan was better known as a supplier of battery materials. Now he is repositioning his business empire for a third time as he becomes chairman of his Shanghai-listed entity once again. Zheng’s new business line is polarisers, a key raw material for the liquid crystal display (LCD) panels used in electronic devices.

Last summer, South Korea’s LG Chem agreed to sell its polariser business in China to Shanshan for $1.1 billion. The deal received regulatory approval at the beginning of this year and the impact of the change in commercial direction has already transformed the company’s bottom line. Preliminary first quarter results show that Shanshan will swing from a net loss of Rmb84 million ($12.95 million) in the first quarter of 2020 to a net profit of between Rmb250 million to Rmb280 million in the first quarter this year. The company says that the polariser business now accounts for about Rmb160 million to Rmb190 million of total profit.

At a stroke, Shanshan replaces LG Chem as the world’s largest manufacturer of LCD polarisers, with a 35% market share, ahead of Japan’s Nitto Denko and Sumitomo Chemical. It has called the new company Shanjin Optoelectronics and Zheng told reporters at a strategy day this month that the acquisition will help to bring much more control of the electronics supply chain onto Chinese soil.

Industry experts say the acquisition is only the first step but that Shanshan will struggle to exert full control over a hypercompetitive sector. Shanshan will need to “accelerate strategies in other polariser-related segments,” argues Trendforce, a consulting firm.

Shanshan has locked in the former management, including teams of South Korean specialists, with an earn-out structure in the takeover. It has also announced an ambitious investment plan to increase production capacity and set up a global research centre.

Zheng has a track record of picking his companies and business sectors carefully and profitably. Mind you, his corporate philosophy is somewhat unusual: he works for a maximum of six hours per day. As we wrote in WiC125, Zheng also recommends a decent walk as a way of keeping a clear head. A local blogger praised some of his other traits: “He’s as vigorous as a soldier, forthright like a Northeasterner but as sensitive and shrewd as a Zhejiang merchant.”

As for LG Chem, it exited the business because the polariser production sector has come under margin pressure, largely due to competition from Chinese companies. The Korean giant is also in the process of transitioning away from LCDs to next-generation OLED panel technologies, including quantum dot.

Last February, it sold its LCD colour photoresist business to a subsidiary of Jiangsu Yoke Technology and it has also shut down its glass substrate business.

Meanwhile, controversy surrounding another South Korean divestment isn’t dying down. In WiC535, we wrote about Magnachip, the world’s second largest manufacturer of OLED panel driver semiconductor chips. The New York-listed and Seoul-headquartered company was due to be sold to a Chinese private equity firm. However, the deal then ran into huge opposition in South Korea on concerns that more advanced technology would then come under Chinese control.

Earlier this month, employees at the target company protested against the sale by shaving their heads outside the company’s South Korean plant. Questions have also been asked in parliament, with Prime Minister Hong Nam-ki assuring his critics that “the government is taking the issue seriously”.

He also told lawmakers that the government could block the deal under the Industrial Technology Protection Act and is currently reviewing whether “core national technology” is at stake before deciding whether to approve the sale.

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