On the evening of January 10, Shengxiang Biology (688289) announced that it intends to acquire 100% of the shares of Zhongshan Weiming Haiji Biopharmaceutical Co., Ltd. (hereinafter referred to as "Zhongshan Haiji" or "target company") held by Guoliang Minsheng, Yunshi Taiyu, Ningbo Huiyin, Xiamen Qinzhe, Guoliang Quansheng, Zheng Shuiyuan and Wu Yetian for RMB 807.5 million. After the completion of this transaction, Zhongshan Haiji will become a wholly-owned subsidiary of the Company.

The reporter noted that in recent years, biopharmaceutical companies have been thinking about diversified cooperation methods, and the capital market has accelerated mergers and acquisitions.

A few days ago, Haier Bio's planning of "snake swallowing elephant" merger and acquisition has attracted much attention, and Shengxiang Biotechnology spent more than 800 million yuan to make a large-scale acquisition, which is relatively rare in the industry.

In fact, in recent years, Shengxiang Biotech has frequently improved its industrial chain through investment and equity acquisition.

In June 2021, Shengxiang Biotech acquired 14.77% of Zhenmai Biotech at a premium of nearly 23 times, spending about 255 million yuan to become its second largest shareholder.

In 2022, Shengxiang Biotech invested US$7 million (about RMB 46.94 million) in First Light Diagnostics Inc., a rapid antimicrobial susceptibility testing company, holding 21.77% of the shares.

On May 9, 2023, Shengxiang Biotech announced that it would invest 171 million yuan in Shenzhen Ansai in the form of a joint venture through equity transfer and capital increase, indirectly holding 36.286% of the equity of Shenzhen Ansai, and continue to increase the field of chemiluminescence.

On May 9, 2024, Shengxiang Biotech completed the acquisition of 100% equity interest in Hunan Shengwei Velocity Sensitive Biotechnology Co., Ltd. with a transaction amount of RMB 123.33 million. At the same time, Shengxiang Biotechnology plans to transfer all 21.69% of the equity of First Light, a shareholding company, to a wholly-owned subsidiary of Hunan Shengwei Sumin, with a transfer consideration of US$2.2158 million.

This time, Shengxiang Biotech directly aimed at biological agents in the field of pharmaceuticals. In terms of amount, the acquisition of Zhongshan Haiji is the largest acquisition since the establishment of Shengxiang.

Shengxiang Biotech said that through this transaction, it will use the company's business advantages in the field of in vitro diagnostics and Zhongshan Haiji's business advantages 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 Weiming Haiji Biopharmaceutical Co., Ltd. was established in 2004, engaged in the research and development and production of genetic recombinant products and biological products, the main products are human growth hormone (short-acting powder injection, short-acting water injection).

Shengxiang Bio's announcement also disclosed the main financial data of Zhongshan Haiji in the latest year and the first period: the operating income in 2023 will be about 350 million yuan and the net profit will be 48.2638 million yuan. From January to May 2024, the operating income will be 208 million yuan and the net profit will be 39.5782 million yuan. As of May 31, 2024, Zhongshan Haiji's total assets were 362 million yuan, and its total liabilities also rose to 103 million yuan.

As of May 31, 2024, the book value of all equity of Zhongshan Haiji shareholders is 259 million yuan, the appraised value is 810 million yuan, the value added is 551 million yuan, and the appreciation rate is 212.64%.

It is worth noting that the acquisition comes with performance commitments.

Among them, Party B (Guoliang Minsheng/Yunshi Taiyu/Ningbo Huiyin/Xiamen Qinzhe/Guoliang Quansheng/Zheng Shuiyuan/Wu Yetian) 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 profits and losses) will not be less than 140 million yuan and 180 million yuan respectively. If the above-mentioned performance commitments are achieved, the average annual growth rate will exceed 50% based on the target company's net profit in 2023, which will have a positive effect on the company's future strategic development and operating performance.

However, comparing the main financial data of Zhongshan Haiji in the last year and the first period, it is not difficult to see that it is not easy to achieve the performance commitment.

It is worth mentioning that most of the companies previously acquired by Shengxiang Biology have not been as they wish after a period of integration, and some of them are still in a loss-making state. Judging from the data released in the 2024 semi-annual report, its 6 associates are all in a state of loss, and the cumulative investment profit and loss in the first half of the year has reached 13.69 million.

Moreover, from the perspective of the field where Zhongshan Haiji is acquired, the current growth hormone market is fiercely competitive, and there are many domestic enterprises in the layout. If Shengxiang Biotech enters this field in the future, it will also need to face pressure from competitors, including competition in terms of product quality, price, market share, etc. Therefore, there is some uncertainty as to whether the acquisition will meet expectations.

In addition, the equity acquisition agreement also makes arrangements for valuation adjustment: if the target company completes 100% of the committed net profit in 2025, the overall valuation of the target company in this transaction will increase by 1.73 yuan, and if the target company completes 100% of the promised net profit in 2026, the overall valuation of the target company in this transaction will increase by 220 million yuan. Based on the original valuation of 808 million yuan, after the completion of the above-mentioned valuation adjustment, the cumulative increase in the valuation adjustment of the target company shall not exceed 393 million yuan.

One of the trigger conditions is that if the actual net profit of the target company in a certain fiscal year during the performance commitment period does not exceed 70% of the promised net profit, it is not necessary to make corresponding valuation adjustments according to the actual net profit of that fiscal year, but the valuation adjustment shall be made in accordance with this agreement for other fiscal years in which the actual net profit exceeds 70% of the promised net profit during the performance commitment period.

As for the impact of this transaction on the company's future financial situation, Shengxiang Biotechnology said that the company will complete the transaction by cash payment, and the source of funds for this acquisition is the company's own funds and bank merger and acquisition loans, and the transaction consideration will be paid in installments according to the progress of the transaction, which will have little impact on the company's cash flow. The transaction will not adversely affect the Company's day-to-day operations, financial stability and liquidity.

According to public information, Shengxiang Biology was established in 2008 and is mainly engaged in diagnostic reagents, instruments, and third-party medical testing services. The company has been selected into the top 100 global medical device companies and the top 100 pharmaceutical industries in China. As of September 2024, Shengxiang Bio's products and solutions cover more than 160 countries and regions around the world, and have provided testing products for more than 3 billion people.

In terms of performance, Shengxiang Bio's third quarter report for 2024 shows that from January to September last year, the company achieved operating income of 1.033 billion yuan, a year-on-year increase of 63.24%; net profit attributable to shareholders of listed companies was 195 million yuan, down 34.80% year-on-year; deducted non-net profit of 151 million yuan, a year-on-year increase of 637.21%.

Among them, the operating income in the third quarter was 316 million yuan, a year-on-year increase of 54.08%; net profit attributable to shareholders of listed companies was 38.7212 million yuan, down 81.39% year-on-year.

Shengxiang Biotech said that the revenue growth was mainly due to the rapid highlighting of the company's technology and market advantages in the field of in vitro diagnostics, and the rapid development of technology, products and market layout in many key fields such as respiratory tract, maternal and child, blood source, sequencing, etc., and gradually entering the stage of mass growth. The decline in net profit attributable to the parent company was mainly due to the decrease in non-recurring profit and loss during the reporting period.