On November 21, 2025, China Union Development Holdings (00264.HK) announced plans to acquire up to 100% of domestic power semiconductor company LongTeng Semiconductor for HK$4.5 billion to HK$9 billion.

This transaction is a typical Reverse Takeover (RTO), where an unlisted company gains control of a listed entity by injecting assets—effectively LongTeng Semiconductor acquiring the shell company China Union Development Holdings.

This isn’t LongTeng Semiconductor’s first attempt to enter the capital markets. In June 2021, it sought a listing on the STAR Market but withdrew its application in December 2021 after two rounds of inquiries. Market speculation attributed the failure to its small scale and weak financials.

Before the announcement, China Union Development’s stock price surged 23% from HK$2.05 to HK$2.53 between November 18 and November 24. By December 5, it settled at HK$2.60. The muted reaction may reflect market concerns about LongTeng Semiconductor’s fundamentals.

**Military Business Once Drove Profits, but Industry Downturn Brought Losses** Founded in July 2009, LongTeng Semiconductor specializes in R&D, design, and sales of power MOSFETs. Initially adopting a fabless model, it has gradually shifted toward an IDM model with partial in-house production.

Before 2018, its clients were primarily in the civilian sector. However, shifting international trade policies accelerated domestic substitution in military applications. From 2018 to 2020, military sales contributed minimally to revenue (2.49%, 0.06%, and 9.72%, respectively), but profitability soared. In 2020, gross profit reached RMB 40.69 million, up nearly 300% year-on-year, with military clients accounting for over 70% (RMB 29.48 million).

Military-grade power devices commanded a 95.97% gross margin in 2020, far exceeding the 8.22% for civilian products. However, receivables ballooned to RMB 71.96 million (+150% YoY), reflecting longer payment cycles in military contracts.

By 2020, LongTeng turned a profit, with net income rising to RMB 24.53 million from a loss of RMB 13.20 million the prior year. But the military electronics sector peaked in 2022, entering a downturn due to inventory adjustments and policy shifts. From 2022 to 2024, 64 listed military electronics firms saw total revenue drop from RMB 111.6 billion to RMB 96.1 billion, with over half reporting losses in 2024.

LongTeng’s performance suffered too: Q1-Q3 2025 revenue hit RMB 614 million, but net losses reached RMB 58.69 million.

**Weak R&D and Pricing Pressure in Civilian Market** During its STAR Market bid, LongTeng’s small scale drew scrutiny. While its three-year R&D-to-sales ratio (11.47%) and revenue CAGR (39.20%) met requirements, absolute R&D spending (RMB 41.57 million) and revenue (RMB 173 million) fell short.

Peers averaged over RMB 200 million in annual R&D, dwarfing LongTeng’s sub-RMB 20 million. In 2020, its civilian power device gross margin fell 2.68 percentage points, while rivals saw gains—some exceeding 10 points. LongTeng attributed this to price discounts for new products, signaling weaker competitiveness.

**Capacity Expansion Amid Challenges** LongTeng’s aborted IPO aimed to fund an 8-inch power semiconductor fab. Phase one began production in early 2023, with phase two under planning. While in-house production enhances supply chain stability, the RMB 1.18 billion fab could incur annual depreciation of RMB 20–50 million, adding pressure amid losses.

The deal remains non-binding, with a wide valuation range suggesting early-stage negotiations. Investors should monitor LongTeng’s post-listing performance closely.