“Science and Technology Innovation Board Daily”, December 29 (Reporter Zheng Bingxun) Recently, the Shanghai Stock Exchange issued a letter of review and inquiry to Kaisai Biotech (688056.SH) to raise additional capital for specific targets.

According to the latest “Fixed Increase Plan” submitted in December this year, Kaisai Biotech plans to issue no more than 153 million shares to “Shanghai Yaoxiu”, raising a maximum capital of 6.6 billion yuan, all of which will be used to “supplement working capital” and “repay loans.” At the time of the IPO that year, Kaiser Biotech raised 5.561 billion yuan, part of which was also used to make up the flow.

The “Science and Technology Innovation Board Daily” reporter discovered that in the 3 years since Kaisai Biotech landed on the Science and Technology Innovation Board, it has also used overraised funds and project savings several times to make up the flow, but the “lack of money” dilemma has always existed.

▌Cooperation with China Merchants Group was questioned

According to the “Fixed Increase Plan”, the target of this fixed increase is an enterprise controlled by the Liu Xiucai family, the actual controller of Kaisai Biotech. After the fixed increase is completed, the controlling shareholder of Kaisai Biotech will also change from the original CIB (Kaisai Biotech Industry Co., Ltd.) to Shanghai Yaoxiu, and the actual controller is still the Liu Xiucai family.

In this fixed increase process, China Merchants Group plans to subscribe to Shanghai Yaoxiu in cash and hold 48.9995% of Shanghai Yaoxiu's share. This means that the China Merchants Group may intervene in the subsequent operation of Kaisai Biotech as an indirect shareholder.

According to Kaisai Biotech, the company's biological manufacturing products can be used in various industrial sectors under China Merchants Group. As a result, the two parties signed a “Business Cooperation Agreement”. Between 2023 and 2025, China Merchants Group will purchase and use no less than 10,000 tons, 80,000 tons, and 200,000 tons of “bio-based polyamide resin” in Kaisai Biotech's products.

In recent years, Kaiser Biotech's performance growth has clearly shown signs of slowing down.

According to the data, Kaisai Biotech's revenue in 2022 was 2,441 billion yuan, a slight increase of 3.28% year on year; net profit to mother was 553 million yuan, down 6.97% year on year. Entering 2023, revenue for the first three quarters fell 14.81% year-on-year to 1,565 million yuan, while net profit to mother plummeted 35.44% to 314 million yuan.

If this cooperation is successfully implemented in the end, it will undoubtedly provide direct support for Kaiser Biotech to boost its performance. However, Kaiser Biotech did not disclose in the “Fixed Growth Plan” that the above procurement volume had a specific impact on the company's performance, nor did it disclose the company's production capacity.

The “Science and Technology Innovation Board Daily” reporter found that in 2022, Kaisai Biotech's “bio-based polyamide series” products produced 20,000 tons, with sales volume of 11,000 tons. The production and sales rate was only 54.46%, and inventory exceeded production in that year, at 21,600 tons.

The Shanghai Stock Exchange is also clearly concerned about the content of this cooperation, and asked Kaisai Biotech to explain the considerations of industrial cooperation with China Merchants Group and how the two sides can reflect collaborative development in the future.

▌The speed of making money can't keep up with spending money, and gross margin is falling rapidly

Regarding the reason why this increase is being used to replenish current flows and repay debts, Casey Biotech explained that since the industry is a capital- and technology-intensive industry, expanding the scale of operations requires a large amount of working capital, and currently bio-based polyamide products are in the promotion stage, and a large amount of capital investment is also required.

Cathay Biotech is an enterprise that develops, produces and sells novel bio-based materials based on synthetic biology and other disciplines. Currently, “long chain binary acid series” products and “bio-based polyamide series” products are the main sources of Kaiser Biotech's revenue, and the former has contributed more than 90% to revenue for a long time.

Long-chain binary acids can be used to produce perfumes, hot melt adhesives, metalworking fluids, lubricants, coatings, etc. Bio-based polyamide products are used in various downstream fields such as engineering plastics, spinning, transportation logistics, construction materials, and new energy. Currently, Kaiser Biotech's main downstream customers include DuPont, Emmans, Evonik, Novo Nordisk, etc.

Additionally, as of September 30, 2023, Cathay Biotech had short-term loans of $521 million, a sharp increase of 222.75% from the beginning of the year; long-term loans maturing within one year were 737 million yuan, with a long-term loan balance of 245 million yuan. Within the next three years, Kaiser Biotech will need to repay a total of 1,503 billion yuan in bank loan principal.

After comprehensively considering factors such as disposable capital balance, operating profit, and capital requirements, Kaiser Biotech estimates that the total capital gap for the next three years is 11.224 billion yuan.

Judging from the speed at which it spent money, Casey Biotech did appear to be too “big big”. The monetary capital on its account was 9.629 billion yuan in 2021, and dropped to 6.295 billion yuan by 2022. It spent 3.3 billion yuan a year, which is only 900 million more than that year's revenue. As of September 30, 2023, the monetary funds on the account were further consumed to 5.820 billion yuan. In the same period, its cash and cash equivalents amounted to $5,575 billion.

The “Science and Technology Innovation Board Daily” reporter discovered that in order to ease the “lack of money” dilemma, Kaisai Biotech has been busy making up for the flow.

First, Kaisai Biotech overraised 581 million yuan during its IPO, of which 514 million yuan was used to make permanent refunds, accounting for 88.47%. Second, in July of this year, Kaisai Biotech's IPO fundraising project “Bio-based Polyamide Engineering Technology Research Center” was completed. The project savings of 309.13,400 yuan was also used for permanent reflow. Finally, in December of this year, Kaisai Biotech took another 203,000 yuan from the overraised capital to make up the flow.

In addition to the IPO, Kaisai Biotech has already refunded 545 million yuan several times.

Although Kaiser Biotech gave its own explanation for fixed use, the “weakness” of its business performance also vaguely showed a lack of ability to grow.

In 2021-2022 and January-September 2023 (the “reporting period”), Kaiser Biotech's gross margins were 46.62%, 35.63%, 35.24%, and 28.48%, respectively, showing a rapid downward trend. In the same period, Kaisai Biotech's main revenue from overseas accounted for 48.96%, 44.04%, 45.92% and 34.29% respectively. Among the top five customers, the share of overseas customer sales declined significantly, showing the current situation of weak overseas revenue.

Meanwhile, during the reporting period, Kaisai Biotech's inventory rose year by year. The inventory book value rose rapidly from 775 million yuan in 2021 to 1,514 billion yuan at the end of September 2023. Inventory turnover ratios were 1.00, 1.55, 1.15, and 0.97, respectively, lower than the average of major comparable companies in the same industry.

These situations have also received attention from the Shanghai Stock Exchange, and Kaisai Biotech was requested to provide an explanation. Next, the “Science and Technology Innovation Board Daily” reporter will keep an eye on how Kaisai Biotech will respond to inquiries.