Former Alibaba CEO Wei Zhe officially joined Shengxiang Biotech (688289), which made this in vitro diagnostic company gain a lot of attention in the market. Soon after Wei Zhe joined, Shengxiang Biotech threw out an M&A plan to lay out the growth hormone business. According to the latest announcement of Shengxiang Biology, it plans to acquire 100% of the shares of Zhongshan Weiming Haiji Biopharmaceutical Co., Ltd. (hereinafter referred to as "Zhongshan Haiji") for 807.5 million yuan. In the growth hormone track to the long-acting water agent, in the eyes of industry insiders, Zhongshan Haiji may face the challenge of imperfect product structure. In addition, there is a premium in this merger, and the appraised value of the target is 212.64%. Shengxiang Biotech, whose performance continues to decline, is still unknown whether it can improve the company's competitiveness by virtue of this merger and acquisition.

intends to acquire 100% equity interest in Zhongshan Haiji

According to the latest announcement of Shengxiang Biology, the company intends to acquire 100% of the shares of Zhongshan Haiji for 807.5 million yuan. The Company will complete the transaction in cash with its own funds and bank acquisition loans.

Shengxiang Biotech said that the acquisition is to actively implement the country's call for children's health management and promote the long-term balanced development of the population, and at the same time use the company's business advantages in the field of in vitro diagnostics and Zhongshan Haiji in the field of growth hormone to promote the company's comprehensive strategic layout of "integrated diagnosis and treatment" and improve the company's profitability.

According to the data, Zhongshan Haiji has been engaged in the research and development and production of genetic recombinant products and biological products, and the main products are human growth hormone (short-acting powder injection, short-acting water injection).

However, at present, the competition in the growth hormone track is becoming increasingly fierce. Some industry insiders told the Beijing Business Daily reporter that the powder needs to be blended before use, and now the water agent has a more competitive advantage and is gradually occupying a larger market share. The competition of water agents is very likely to be the competition of long-acting preparations in the future.

Deng Yong, director of the Health Rule of Law Research and Innovation Transformation Center of Beijing University of Chinese Medicine, told Beijing Business Daily that there are differences between short-acting water and long-acting water agents in terms of drug duration, administration frequency and price. Short-acting aqueous agents are common preparations with a short duration of action and usually need to be injected once a day; Long-acting aqueous agents are extended-release formulations in which the drug is released slowly in the body and can continue to work for up to about a week. Short-acting aqueous agents need to be injected daily and administered frequently; Long-acting aqueous agents are injected once a week and are given infrequently. In terms of price, the price of long-acting aqueous agent is relatively expensive due to high production cost and technical requirements; The price of short-acting water agents is relatively low.

Deng Yong further mentioned that companies such as Jinsai Pharmaceutical occupy a large share of the market, with high brand awareness and market recognition; Zhongshan Haiji only lays out short-acting products, the product category is relatively single, and the market for long-term products is growing rapidly, so it may face the challenge of imperfect product structure.

The appraised value-added rate is more than 2 times

It is worth mentioning that there is a certain premium for this acquisition.

According to the announcement, as of May 31, 2024, the book value of all the equity of Zhongshan Haiji shareholders was 259 million yuan, and the appraised value was 810 million yuan, with an appreciation of 551 million yuan and an appreciation rate of 212.64%.

On the evening of January 12, Shengxiang Biotechnology issued a supplementary announcement on the acquisition of shares, updating the financial data of Zhongshan Haiji. Financial data show that in 2023, Zhongshan Haiji's operating income will be about 350 million yuan, and the corresponding net profit will be about 48.2638 million yuan, from January to May 2024, Zhongshan Haiji's operating income will be about 208 million yuan, and the corresponding net profit will be about 39.5782 million yuan, and from January to November 2024, Zhongshan Haiji's operating income will be about 408 million yuan, and the corresponding net profit will be about 105 million yuan.

Shengxiang Biotech reminded the risk that because the acquisition of equity is a business combination not under the same control, after the completion of this transaction, the target company will become a wholly-owned subsidiary of the company, and the company's consolidated balance sheet is expected to form a certain amount of goodwill. After this transaction, the company will fully integrate with the target company to ensure the market competitiveness of the target company and the ability of long-term stable development, but if there are adverse changes in the future business activities of the target company, there will be a risk of impairment of goodwill, which will adversely affect the company's future current profit and loss.

Xu Xiaoheng, an investment and financing expert, said that the high-premium mergers and acquisitions of listed companies will push up the goodwill on the books, and goodwill has always been considered to be the "killer" that strangles the company's performance, which will bury hidden dangers for the company to a certain extent, and it is necessary to be vigilant against the risk of goodwill impairment caused by the underlying business situation not meeting expectations.

In addition, there is a performance commitment in this transaction. The equity transferor promises that the audited net profit of the target company in 2025 and 2026 (determined according to the principle of net profit before and after deducting non-recurring gains and losses, whichever is lower) shall not be less than 140 million yuan and 180 million yuan respectively.

The performance has declined for three consecutive years

Shengxiang Biotech, which threw out the merger and acquisition plan, made more than 2.6 billion yuan in 2020 under the influence of the new crown nucleic acid detection reagent business. After reaching the peak of performance, the company's attributable net profit has declined for three consecutive years from 2021 to 2023.

Financial data show that from 2020 to 2023, the operating income of Shengxiang Biotechnology will be about 4.763 billion yuan, 4.515 billion yuan, 6.45 billion yuan, and 1.007 billion yuan respectively, of which the operating income will decrease sharply in 2023; The corresponding attributable net profit was about 2.617 billion yuan, 2.243 billion yuan, 1.937 billion yuan and 364 million yuan respectively.

In the first three quarters of 2024, Shengxiang Bio's attributable net profit also declined. Financial data show that during the reporting period, the operating income of Shengxiang Biotechnology was about 1.033 billion yuan, a year-on-year increase of 63.24%; The corresponding attributable net profit was about 195 million yuan, a year-on-year decrease of 34.8%.

In order to reduce its dependence on the new crown nucleic acid detection reagent business, Shengxiang Biotech has been looking for new performance growth points in recent years. For example, on May 9, 2023, Shengxiang Biotechnology announced that the company plans to jointly invest in the establishment of Hunan Shengxiang Ansai Biotechnology Co., Ltd. with related parties to further improve the company's comprehensive strategic layout in the field of immunodiagnosis, especially chemiluminescence. After a year, Shengxiang Biotechnology once again announced that the company plans to jointly invest in Hunan Shengwei Velocity Sensitive Biotechnology Co., Ltd., a joint venture company, with related parties to further focus on the field of rapid drug sensitivity testing.

In the view of Shengxiang Biology, Zhongshan Haiji, the target of this acquisition, has a certain production capacity in recombinant protein and peptide technology platforms, as well as its overall industrial microorganisms and synthetic biology, and can form upstream and downstream synergies with the company in the field of functional biomedical products. In the future, the company will continue to provide technical support and collaborative innovation for growth hormone research projects based on the advantages of both parties, and its professional capabilities in the field of diagnostic testing can also provide necessary verification and feedback support for the continuous optimization and iteration of growth hormone products.  

In response to company-related issues, a reporter from Beijing Business Daily called the office of the secretary of the board of directors of Shengxiang Biology for an interview, but no one answered the other party's phone.

Beijing Business Daily reporter Ding Ning