Jason Bond
Good afternoon,
I) Introduction
II) Enter the CYYT Syndicate, Stage Right
III) Why Liquidmetal Has the “Fruit Company” By the Short Hairs
IV) Founder Securities Values LQMT at $1.45 by 2019
V) Disclosure
Introduction
It’s been nearly two months since I updated subscribers about Liquidmetal and the speculation surrounding whether Liquidmetal Technologies (“LM”) is/might be/will be participating in the Apple iPhone empire. Yearly about this time, the press ramps up the rumor coverage of Apple’s latest and greatest offerings. And this year is no exception.
In September 2018, 2018 iPhone, iPhone X Plus, iPhone 9 are expected releases, and has LQMT shareholders wondering if Apple will release an iPhone model constructed with some more amorphous metals components, or provide a strong hint of future models sporting the exotic alloy. In addition, of course, to the unveiling of a significant feature made from amorphous metals, some reference---any reference---of where Apple acquired amorphous metals technologies would no doubt spike LQMT on the back of the ‘ooh and aah’ effect of the vast press covering the annual Apple spectacle.
After nearly eight years since Apple purchased its first round of Liquidmetal Technologies (“LM”) patents, I fully understand the frustration felt surrounding how LM amorphous metals technologies had been good enough to prompt the “fruit company” to scramble and secure the Consumer Electronics market for these technologies by the purchase of LM patents for $20 million in Aug, 2010, but apparently not good enough to convert the subsequent exposure of the sale to more recognition and orders outside of Apple’s Consumer Electronics moat. I’ve read posts including pieces of information pointing to a possibility of a deal in LM’s future, then have read other posts including more promising information, and so on. Some of these post have added reasonable and thoughtful points, while others have added nothing but bizarre and sophomoric speculation.
This report not only clarifies facts about what’s happening in amorphous metals space as it relates to the mobile phone makers; it exposes an entire strategic plan involving LM, Eontec and many other obscure China-based companies jointly involved with LM in a tight syndicate of companies with financial ‘muscle’, massive capacity, experience, and track records of success with investors.
This report also discusses why this syndicate of China-based technologies, manufacturing companies and financiers are well-positioned for calendar 2019, the ‘crunch’ year prior to the official roll out of 5g connectivity technology in 2020, and how Apple likely has already responded by making a deal with the syndicate for the must-have amorphous metals technologies demanded of the market operating on the 5G fast lane.
With the rapid amount and weighty activity I found going on in throughout this syndicate, there’s no reasonable explanation for this near-hysteria speed at which this activity has undergone that doesn’t include a milestone deal contracted at some meaningful level by a global player of the size of Apple, Tesla et cetera.
Oh, you might now say, “Hold it right there, Brother Jason. We have seen no progress from Li since he competed construction of his LM facility last year.” And my response is resounding, “Au contraire, mon ami. Read on.”
And to my cyber friends who speculate Li will run out of money before LM gets off the ground; fails miserably with his pie-in-the-sky technologies no one is yet ready to adopt; or hides from LQMT shareholders in shame, I suggest you’ve not done a thorough due diligence. In these cases, I direct my disappointment to insufficient gumshoes initiative and usage of Google Translate as a tool for following the breadcrumbs of Li’s movements in faraway lands of Asia.
If my opining friends had performed the research necessary to account for the strange anomaly of an unknown Hong Kong businessman entering stage right of 19 months ago with a bag of $64 million, and squaring that spectacle with the subsequent zero, zilch, nada and zip by way of guidance (or at least a word of encouragement) from our believed Professor Lugee Li, they would have doubled down on their due diligence by spending four days (as I have) snooping into cryptic Chinese portals, deciphering registered disclosures and other documents written in the Mandarin language.
And what I found was eye-popping, suggesting to me Professor Lugee Li has been kicking some serious butt! And without edifying everyone to the Chinese business culture and the vast difference between business relationship forged by Western businessmen among themselves and relationships formed by Chinese counterparts, I present in this report the rest of what lies underneath the LM iceberg tip.
And Li’s journey and riches center upon Apple, with Tesla and medical devices manufacturers included as customers of equal importance to what I discovered about Li’s complete operation. My latest research started with ways Apple can solve its supply chain problems associated with the mobile phone market and the upcoming burst of the 5G technologies dam in 2020, and how LM is directly involved in Apple’s solution. And you might be surprised to know it will be Apple, not LM, who struggles to prepare for 5G and Samsung’s growing lead over Apple in the OLED displays scramble.
Enter the CYYT Syndicate, Stage Right
I realize what I just stated sounds outrageous. How can the master of business find itself under a barrel from tiny LM? Therefore, let’s get into some details about Professor Lugee Li’s syndicate, what I call the “CYYT,” and you’ll see a picture emerge that, when I saw the picture, it jolted me into the decision to more than triple my stake in LQMT. Like Professor Lugee Li and his Chinese syndicate cohorts, I’m ‘all in’.
Though not a name that easily rolls of the English-speaking tongue, the CYYT is the acronym I gave to the Chaohu Yi'an Yunhai Technology Co., Ltd. syndicate. The essence of the syndicate is a masterfully crafted, assembled and rigidly reinforced Li masterpiece version of Tesla’s Gigafactory, but only approximately 1/7th the size of the largest manufacturing facility of the world.
Located in China’s Guangdong Province, the CYYT is Li’s imaginative and exhaustive response to the supply chain bottleneck in amorphous metals parts supplies coming next year, directly caused by Samsung, Apple and Tesla, to name the top three global resources pigs of the Consumer Electronics market.
We already know the global supply of OLED displays is inadequate for Apple to offer OLED displays to as many iPhone models the company would like. We all know Apple is at risk of falling behind Samsung’s lead in rich display features possible with OLED; but Apple’s problem extends beyond OLED, far beyond. Apple (and other mobile phone makers) has been scrambling to secure amorphous metals components necessary for fully utilizing the life-changing benefits and undreamed of capabilities of 5G technologies.
In the case of the CYYT, Li has carefully positioned the CYYT for the next train leaving the station beyond the OLED capacity issue and additions of titillating ‘wow’ and ‘cool’ features captivating consumers of mobile phone industry; he’s positioned the syndicate for the ‘must-have’ features for those operating in the mobile space to not just thrive, but to survive the demands of the top-tier marketplace!
On Jan. 3, 2017, Foundry World (the only English journal to China’s foundry industry) provided me with the lead I needed to start my investigative journalism into the LM matter. The seemingly innocuous report stated:
On November 16, the light alloy precision die-casting project (Phase I) constructed by Chaohu Yi'an Yunhai Technology Co., Ltd. was completed and put into production. The main products are new energy automotive components, 5G product components and laptop shells. Chaohu Yi'an Yunhai Technology Co., Ltd. is a joint venture funded by Dongguan Yi'an Technology Co., Ltd. and Nanjing Yunhai Special Metals Co., Ltd., with a total investment of CNY 550 million and a building area of 75,000 square meters. The project is to construct a magnesium and aluminum alloys die-casting production base to meet the requirements of energy-saving and industrialization of new energy vehicles in China, and to vigorously develop lightweight automobile components. The main products are precision die-castings for automobile, rail transportation and consumer electronics. The project can annually produce 50,000 t magnesium and aluminum alloy die-castings once put into production.
Okay, so an unpronounceable company forges a JV with two other unpronounceable companies in China in a deal to include 75,000 square feet. Big deal. Oh, wait. That’s 75,000 square meters. That’s big, very big. But who cares?
After researching Dongguan Yi’an Technologies, I discovered the company is a subsidiary of Eontec. Ha? Okay, so I should have known that. But, after following this one lead, the web of alliances, partnerships and players involved with the CYYT culminated to spending last Friday and the weekend tracing all the subsidiaries, financiers, joint ventures and anyone, or entity, connected to Professor Li and/or Eontec.
At the end of this exercise, I had unraveled a list of players that I then had to wrap my head around so I can provide a visual representation of what the CYYT looks like. I’m still not sure if I got all the germain players and details. But what I did wrap my head around is the rough extent of the magnitude, reach, expertise and panache of the CYYT. After three days of playing FBI agent in search of a RICO racket, I felt further detail of the syndicate wasn’t necessary. All I know is, it’s huge and need to report back to my subscribers about what I found.
At the best of my ability at this time, I present an organizational chart of the CYYT syndicate, below.
Exhibit A
Copyright: Jason Bond Picks
In an attempt to visually show the relationship between members of the CYYT, I color-coded companies with direct relationships (I.e, subsidiaries or majority ownership), but I don’t think I did a good job of it. All I can tell you is, the web of integration goes far beyond a mere level of each company issuing gentleman’s agreements, referred to in corporate parlance as memorandum of understanding (MoU). Oh no. Multiple millions of dollars (not yuan) have been moved around, loaned, capital raised by the three kingpins of CYYT: Eontec (ticker: SHE:300328), LM (ticker: LQMT) and Shenzhen Anke, sister company of Analogic Corporation (ticker: ALOG) with a $1.05 billion market capitalization.
The chart was created after reviewing dozens of new releases (in both Mandarin and English language), official documents submitted to Chinese securities authorities, Chinese websites (if available) and equipment/parts retailers and wholesalers. And I know I haven’t reached the bottom of the syndicate, and likely won’t from the opacity endemic to privately-held companies (especially located in China), whose sizes should not be assumed to be small.
In short, the impact I want to make about the CYYT is not only the huge size, but the documents demonstrating the financial commitment made between each member of the syndicate indicates full commitment from each member, not a bunch of MoUs that can be ‘round-filed’ upon awakening one Monday morning.
More than 34 broker/dealers from around the globe met in China’s Guangdong Province earlier this year to assess the financial leverage required for a top-tier production capital reserves revolver for the three kingpins, who then disperse additional contractual agreements. It’s breathtaking, brilliant and the Chinese way of achieving the stealth necessary to supply arguably the two most secretive enterprises of the global consumer marketplace: Apple and Tesla.
And the natural boundaries of language, distance and culture goes a long way from inviting prying eyes. Last year, Apple fired 29 employees for leaking information to the press, with some turncoats facing potential criminal charges. Get it?
And the 'kicker' to this corporate skullduggery is: all CYYT firms have been approved, or implicitly sanctioned, as preferred, priority resourced and protected entities of the People’s Republic of China when Eontec officially ‘made the grade’ in March 2018 (untranslated PDF document from the China Securities Regulatory Commission, here).
In some cases, the privately-held companies involved with CYYT are massive, with one ranking as the largest injection molding machinery company of the world (Shenzhen Lingwei). And I cannot confidently tell you who the ‘boss’ of Shenzhen Lingwei is. His family name, too, is Li. Wonderful. How many Chinese have family names of “Li.” Needless to say, I couldn’t research him. But, with a collective manufacturing space of 75,000 square meters, these Chinese operations dwarf LM’s puny floor space, the latter of which is the amount of floor space dedicated to the bathrooms of the capacity of the CYYT syndicate.
Back to the syndicate chart, Exhibit A, the top three boxes represent the three kingpins of the syndicate: Eontec, LM and Shenzhen Anke, who hold 40%, 25% and 35% of the syndicate’s profits from CYYT, respectively.
The next level represents two boxes: CYYT, and the funding sources of the new syndicate.
What came out of this spider web of connections resulted to CYYT as a legal subsidiary of Eontech, according to Bloomberg and other sources I found on Chinese business sites. CYYT includes a collective investment among the syndicate of RMB 550 million ($82.6 million) and collective manufacturing space dedicated to the project requiring a mammoth-size of 75,000 square/meters (or 807,293 square/feet). And all of it is majority controlled by Li (65%).
And how big is 807,293 square/feet? Look at the photo, below, of Meyer Werft’s Building Dock II. This photo demonstrates what 678,126 square/feet of manufacturing space looks like. And to think, the floor space of CYYT syndicate is 19% larger than the space required for the operations of the Meyer Werft Building Dock II.
Exhibit B
Source: gCaptain.com - Meyer Werft Building Dock II
The brief description of each significant company of the CYYT syndicate list, appear below (except Eontec and LM).
1) Yi'an Technology Co., Ltd. (Eontec): One of the three kingpins funding CYYT; amorphous metals technologies.
2) Dongguan Yihao Metal Materials: Amorphous metals supplier; Received private placement capital from unknown company (probably Yi’an Technology Co. (Eontec);
3) Henan Zhongyue: large manufacturer of amorphous metals transformers; 750 employees; estimated capitalization $1.0 billion+.
Nanjing Yunhai: Funds CYYT. Amorphous metals supplier
4) Hong Kong Liquid Metal Co: supplier of LCD display technologies; Professor Li owns the company; size unknown.
5) Shenzhen Lingwei: largest maker of injection molding machines of the world; auto parts supplier; 1,000+ employees; approximate capitalization $1.5 billion.
Shenzhen Anke: formerly known as Analogic Scientific, Inc.; a Sino-US joint venture by Chinese Academy of Sciences and Analogic Corporation (ticker: ALOG). Shenzhen Anke is a mid-tier medical equipment supplier, including MRI machines and other multi-million-dollar equipment. 500+ employees; estimated capitalization $300 million.
7) Shenzhen Li'an Liquid Metal Equipment Co; unknown size; probably another Etonic-owned equipment company, but not listed in Bloomberg’s database.
So, what do I make of the discovery of this syndicate?
Taken from all the documents I’ve read, the syndicate has solidified its relationships, resources, capital and expertise, beginning in December 2016. And all the documents I’ve reviewed show some stock offerings, significant private placements, minutes of meetings, analysts’ comments, acquisitions, mergers, consolidations, and a deep sense of a structure created to obligate all parties via debt issuance, contracts and financial dependencies and/or covenants.
It was common to find and agreement between parties, then a debt issuance from one of the parties to the other, usually from one of Eontec’s companies, but no always that way. As I see it, the money bags of the syndicate are Eontec/subsidiaries and Shenzhen Anke (state-of-the-art medical equipment maker), with Shenzhen Lingwei as a big player providing large numbers of machinery, manufacturing capacity and expertise needed to implement Lungee Li’s technologies in the auto parts space (Tesla and GM?).
Why Liquidmetal Has the “Fruit Company” By the Short Hairs
But here’s the deal with Apple, who is the focus (I believe) of Eontec’s most cherished involvement in the syndicate. Along with Apple’s problem of securing adequate supplies of OLED displays, Apple and every other mobile phone maker have the problem of securing capacity for amorphous metals components for the upcoming launch of 5G and the explosion of the market for Internet of Things (“IoT”) 5G implies.
In an article entitled, “Catch GaN if You Can,” industry publication Microwaves and RF explains the vital importance of amorphous metals within a microwave environment of 5G:
Somit Joshi is senior director of metal-organic chemical vapor deposition (MOCVD) product marketing at Veeco Instruments. He says, “The ambitious scope of 5G promises to transform cellular communications, creating new opportunities for carriers and service providers. 5G is currently being planned with a vision of greater than 10 Gbps transmission speeds for mobile broadband (phones/tablets/laptops) and ultra-fast low latency for Internet of Things (IoT) applications.”
Joshi adds, “Today, GaN is slowly replacing silicon (Si) in specific applications (i.e., RF amplifier front ends of 4G/LTE base stations). Next-generation 5G deployment will involve additional use of GaN technology. Pre-5G, there was increasing use of GaN-on-SiC in the macro cell. 5G will bring in GaN-on-Si to rival GaN-on-SiC designs with inroads into the small cell space (micro/metro cells) before potentially overlapping into femtocells/home routers and even into handsets.”
The article continues with problems caused by the antennae of mobile phones not specifically designed for 5G, and the benefits associated with wireless charging, as the latter manufactured by AirPower reaches only a maximum capacity of a paltry 29-watts. And the rechargeable system is pricey. Amorphous metals address these problems and device enhancements well, but these technology-saving alloys come with an operational downside to the likes of Apple, Samsung and Tesla: adequate supplies.
The article continues:
“The most notable absence from the market, though, is the number of qualified 0.15-µm GaN-on-SiC foundries. This is something the whole industry is only too readily aware of as roadmap developments take shape addressing these exciting new applications.”
Oh yes, the foundry industry is aware of the opportunity to solve the mobile phone industry’s need for amorphous metals technologies. Many of the documents I read during my research of the CYYT syndicate discuss the launch of 5G and capacity shortage of availability of amorphous metals components in bulk. That’s exactly the motive behind Lugee Li jumping head-first to forming a syndicate eager to join Li’s ‘The Creature of Jekyll Island’ cabal of among the fiercest business competitors of the world.
Including Li’s majority interest in LM, the syndicate has invested nearly US$150 million, not including the indirect investment made by Shenzhen Lingwei to provide the BGM injection molding machines at USD$30,000 per machine. And CYYT will need hundreds of them. I estimate CYYT has committed a total of US$500 million to the project, including machinery, but not including capital revolvers from banks. At a purchasing power parity of 1.6:1 between the U.S. and China, the equivalent investment in the U.S. calculates to US$800 million.
There’s a Contract Somewhere in this Saga
After this level of activity, deals and structure building, can anyone suggest there is no deal with a Moby-Dick-size customer? The CYYT is a private and closely-held entity. Would the CYYT have to disclose a clandestine contract at the behest of Moby-Dick?
No. There is no legal requirement of the CYYT to disclose ‘jack diddly’. And maybe Moby-Dick likes it that way. I mean, Tesla chooses a Peruvian windshield maker over U.S.-based Corning to make its hush-hush Tesla Glass. Most of Apple’s products are made at Foxconn, a Taiwan company, but still managed to fired 29 employees for leaking information. Now, Li does the same thing, but I’m on to him.
So, for those posting on stock message boards opining about nothing going on at LM, you haven’t been paying close enough attention, or haven’t discovered where to look for information. While you’re watching for SEC 8-K documents from LM, the action takes place in China---right now. At this point in the CYYT syndicate, LM’s U.S.-based operation serves the group with an American sales office, prototype production and R&D facility, R&D facility, small run plant, and a 41,000 square/foot start to larger manufacturing capacity down the road in the U.S. LM is akin to a tiny front door leading to a full-scale, after-hours gambling operation in the basement of a daycare center.
So, when does CYYT deploy in earnest?” Next year. Next year is the last year before the roll out of 5G in 2020. And China leads the U.S. in the race to rolling out 5G. Therefore, it makes practical sense for LQMT investors to watch for an announcement about a contract award from Apple Computer, Tesla, GM or some other behemoth later this year, or early next year.
And sales coming in at Eontec next year, where LM receives 38.5% of whatever sales Eontec receives from the CYYT syndicate, will likely come from customers from target markets: Consumer Electronics (Apple), Automotive (Tesla and GM) and Medical Equipment makers (another product group often overlooked in discussions of the IoT market).
I also expect Apple to award the CYYT syndicate (through LM) the middle frame and back shell business, not later than next year, as Apple has almost no other option to exercise power of its purchased patents than award the CYYT contracts for components that are an easy layup for CYYT to deliver.
Remember, just because Apple purchased LM patents, these patent rights don’t suggest Apple can just make a deal with any of its existing suppliers and leave LM out of the gravy. There is none other in the world of nearly the size required by Apple, except the CYYT syndicate and its 807,293 square/foot capacity (1/7th the capacity of Tesla’s Gigafactory, by the way) who can produce bulk quantity of millions.
Founder Securities Values LQMT at $1.45 by 2019
Beijing-based Founder Securities Co. Ltd. (ticker: 601901:CH; market cap US$8.23 billion) issued a strong ‘buy’ recommendation on Jan. 3, 2018, and noted an estimate of earnings for LM is 2019 at RMB 0.09 per share at a PE ratio of 106, for an estimated stock price for LQMT of RMB 9.54 (US$1.45 per share), assuming no issuance of additional shares, the latest of which I think is highly unlikely.
Disclosure
Now, maybe we all can 'square' why Lugee Li appears so confident about what the future looks like for LM and the level of security he must feel with his $64 million LQMT play. And for full disclosure, I have increased my position in LQMT to 1.2 million shares, or $282,000, with my eye on beating Kyle Dennis this year as ‘top dog’ of 2018 and 2019. And I should, therefore, earn a night out on the town, courtesy of my star protege when New Years comes around.
The diary of a real $ trader,
Jason Bond
Special
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