Guardforce AI (GFAI.Q) Continues Expansion, Signs LOI With Kewei Group

Chinese Robotics Market

$38.947M Market Capitalization

Guardforce AI Co. Ltd. (GFAI.Q) announced today that it has signed a non-binding Letter of Intent (LOI) with Shenzhen Kewei Robot Technology Co. Ltd. and Shenzhen Yeantec Co. Ltd., or the Kewei Group. Under the terms of the LOI, Guardforce will purchase up to 36 of the Kewei Group’s subsidiaries located in China.

“Apart from the United States, China has become one of the vital markets with surging needs across our targeted industries. Beijing, Shanghai, Tianjin, and Chongqing are the largest and only four directly-administered municipalities in China, and are among the top 10 cities economically speaking,” said Lei Wang, CEO of Guardforce AI.

Under the terms of the LOI, in the first of two phases, Guardforce AI will acquire eight of the Kewei Group companies. In the second phase, the Company will receive the right of refusal to purchase the remaining 28 companies within a period of 24 months following the signing of the LOI. However, the purchase of the additional 28 companies will depend on Guardforce AI’s operational plans at the time.

According to the International Federation of Robotics, China has become the world’s largest market for industrial robotics and is the fastest-growing market worldwide. Following the onset of the COVID-19 pandemic, Chinese companies began deploying robots and automation technology to compensate for a lack of staff.

Additionally, the Chinese government’s Made in China 2025 (MIC 2025) industrial policy identifies the robotics industry, along with Artificial Intelligence (AI) and automation, as a strategically important sector. As a result, the Chinese government aimed to raise the global market of Chinese-made robots from 31% in 2016 to more than 50% by 2020.

In order to fuel this growth, the Chinese government has established several programs and incentives, all of which are intended to encourage R&D development and innovations. Program benefits include offering robot manufacturers and automation businesses low-interest loans, tax relief, and land rental incentives.

Letter of Intent

The purchase price for the eight companies in phase one will be based on a valuation that is equal to one-time projected average revenues from 2022 to 2026. This number is estimated to be USD$30 million and will be paid in a mix of cash and Company restricted shares at a price of USD$2.00 per share. In terms of specifics, 10% will be paid in cash, with the remaining 90% paid in restricted shares of Guardforce AI.

“We must not ignore this market when it comes to our global expansion plans. Additionally, Guardforce AI is in a unique position to lend its global exposure to the acquired companies. The acquisitions will not only enable us to penetrate the most developed cities and areas in China but also provide access to evolving markets,” continued Lei Wang.

The Company will be required to pay Kewei the 10% cash component, or USD$3,000,000 of the purchase price as a deposit. Kewei will then deliver to Guardforce AI 100% of the outstanding share capital of the eight companies as a pledge, within 10 days of the LOI’s signing. Among other things, the acquisition is subject to the satisfactory completion of due diligence by the Company, entry into a definitive agreement, and any required third-party consents.

The Companies

Beijing Keweian Robot Technology Ltd. (Beijing)
Shanghai Nanxiao Kewei Intelligent Technology Ltd. (Shanghai)
Tianjin Kewei Robot Technology Ltd. (Tianjin)
Chongqing Kewei Robot Technology Ltd. (Chongqing)
Guangxi Kewei Robot Technology Ltd. (Guangxi)
Fuzhou Kewei Robot Technology Ltd. (Fuzhou)
Hainan Kewei Robot Technology Ltd. (Haikou)
Beijing Wanjia Security Systems Ltd. (Beijing)

This list includes the companies proposed in the first phase of the LOI. Keep in mind, seven of the eight companies are well-established and are supported by experienced salesforce and management teams. These companies provide robotics sales and rental services, serving clients in a variety of industries, including hospitality, healthcare, government facilities, and property management.

Guardforce AI’s share price opened at $1.10 today, down from a previous close of $1.12. The Company’s shares were up 18% and were trading at $1.32 as of 1:08 PM EST.