SMIT (ASX: 02239) has announced that its wholly-owned subsidiary, SMIT Group (Shenzhen) Co., Ltd., has entered into two share transfer agreements. The agreements are with Shengshi Zhida and Jiutian Shengshi for the sale of a combined 5 million shares in a company named Chip Journey, representing approximately 3.95% of its equity. The total consideration for the transaction is approximately RMB 63.2 million.

The group initially acquired the stake in Chip Journey in 2020 as a strategic investment in the early-stage technology firm. Chip Journey focuses on providing chip design services and developing electronic design automation (EDA) software for digital chip implementation.

Since the initial investment, Chip Journey has made progress in developing its proprietary EDA tools and is collaborating with key players in the chip design industry to commercialize these tools.

The company's board believes the share transfer provides an exit opportunity for this minority investment and will allow the group to realize a substantial return on its investment in Chip Journey. While the disposal will result in an accounting loss on sale, the company has been re-measuring the fair value of its stake in Chip Journey using a market comparable companies approach. This fair value fluctuates with changes in Chip Journey's revenue levels and market revenue multiples.

The group has been recognizing fair value gains or losses annually in its past financial statements. Considering the original acquisition cost of RMB 5 million when the stake was first purchased in 2020, the share transfer represents a significant investment return for the group.