Weihai Honglin Electronic Co., Ltd. (“Weihai Electronic”) a wholly owned subsidiary of the Group has made an investment to enter the PRC automobile wiring harness market by entering into a capital increase agreement (“Capital Increase Agreement”) with Wang Xiang , Wang Weiguo (“Existing Shareholders”) and Tianjin Rituo Automobile Denso Co., Ltd (“Tianjin Rituo”)on 21 February 2011.Our Group will make a capital contribution of RMB 58.60 million in aggregate to Tianjin Rituo. Upon completion of the capital contribution, Tianjin Rituo will be held as to 55% by Weihai Electronic, and the remaining 45% by the Existing Shareholders. The Capital Increase Agreement signifies our Group formally entry into the field of PRC automobile wiring harness. The Existing Shareholders have also undertaken to the Group that the aggregated amount of the audited net profit after tax of Tianjin Rituo for 2011 and 2012 will not be less than RMB 40,000,000.
Tianjin Rituo was established in January 2005 and principally engaged in the design, development, manufacture and sale of a comprehensive range of signal transmission products for automobile including automobile wiring harness and signal controller. It is an authorized supplier for many well-renowned domestic automobile manufacturers. Prior to the completion of our investment, Tianjin Rituo has RMB5,000,000.00 in registered capital and around 700 employees in total. Its annual maximum production volume in automobile wiring harness and signal controllers amount to 120,000 units and 350,000 respectively. Tianjin Rituo sales revenue for 2010 was about RMB 206 million.
We believe that Tianjin Rituo has a strong R&D capability, strong business foundation and a solid customer base. Tianjin Rituo Advanced Technology Co., Ltd, the only wholly-owned subsidiary of Tianjin Rituo, has been focused on the improvement of R&D capability since establishment over ten years ago and now has a total of around 60 R&D employees. In recent years, its team has participated in the initial stage design and development of automobile wiring harness concurrently with leading PRC automobiles manufacturers including Hafei, Jinbei, Fukuda, Haima, Changfeng, Xiali, Jianghuai and enjoy a enviable reputation in the PRC automobile industry. Its existing customer base boasts of leading PRC automobile names such as Foton, Xiali, JAC, Hafei, Jinbei, Changfeng and Mazda. Tianjin Rituo has also being certified as a “Outstanding authorized supplier” by Foton in recent years.
The PRC automobile industry is currently highly fragmented, with over 100 domestic players, which enterprise with strong production capability and strong R&D capability few and far in between. As the PRC automobile industry continues to develop and grow, we believe that automobile wiring harness would also register strong growth in the next 3-5 years and at the same time we also expect the industry to undergo significant market consolidation. We believe that with the existing competitive strengths and technological knowhow of Tianjin Rituo in the industry, together with the management knowhow, production and cost control ability and financial strength of our Group, Tianjin Rituo would be able to register strong growth going forward.
Post our investment, we will continue to retain all the key staff in Tianjin Rituo and will increase the investment in R&D through expanding its Tianjin R&D center to further increase its R&D edge and capability. In order to address the increasing shortage of manpower and pressure in labour wages in Tianjin, we also planned to allocate about 4,000 sqm of production facility and adequate production manpower in our Dezhou production facility for the production of Tianjin Rituo’s automobile wiring harness products and relevant staff training has already started. And as the operations and scale of Tianjin Rituo continue to grow, our Group will plan and allocate sufficient production capacity accordingly to accommodate Tianjin Rituo needs as we go forward in order to increase production efficiency, lower cost structure and to increase the pricing competitiveness of our automobile wiring harness products.
We are confident that this new automobile wiring harness unit will become a key growth driver for our enlarged Group and we will strive towards building a market leading position in our target PRC automotive wiring harness industry in the future.