Photo source: Visual China

Blue Whale financial reporter Wang Jianwen

As soon as the annual report season was over, news of shareholders of listed companies reducing their holdings began to rise one after another.

On the evening of May 6, Jinhui Liquor issued an announcement stating that the company's shareholder Jinan Tiesheng No. 3 Investment Partnership (Limited Partnership) (hereinafter referred to as “Tiesheng No. 3”) will reduce the company's shares by 3%.

As an investment fund under the Shandong State-owned Assets Administration Commission, Tiesheng 3 transferred 5% of Jinhui Liquor's shares held by Fosun listed company Yuyuan Co., Ltd. in July 2023. The transfer price was 23.61 yuan/share. However, as of the close of trading on May 7, the stock price of Jinhui Liquor was 22.12 yuan/share, which was lower than the cost price of the transferred shares.

Strangely enough, why is Tiesheng No. 3, who has been in the game for less than a year, rushing out?

Shandong Guozi was in a hurry to leave the market and helped Li Ming stabilize his control

In July 2023, Tiesheng 3 obtained 5% of Jinhui Liquor's shares from the Fosun listed company Yuyuan Co., Ltd. at a consideration of 599 million yuan through an agreed transfer agreement. The transfer price was 23.61 yuan/share.

In the announcement, Tie Sheng said on the 3rd that the company's transfer of Jinhui Liquor shares was mainly based on optimism about Jinhui Liquor's management capabilities, development plans, and performance growth prospects. However, the company also stated that in the next year, it has no plans to continue to increase its shares in Jinhui Liquor, and if the company reduces its holdings within a year, the lowest price will not be less than 10% off the transfer price. Based on this calculation, currently if Tiesheng No. 3 wants to reduce its holdings in Jinhui Liquor, the lowest price is 21.25 yuan/share.

By the close of trading on May 7, the company's stock price closed at 22.12 yuan/share, which is lower than Tiesheng 3's share cost, which means that if the current stock price were used to reduce its holdings, Tiesheng 3 would lose money.

It is worth noting that in the ten trading days before Tiesheng announced its holdings reduction on the 3rd, the stock price of Jinhui Liquor rose quite significantly. The stock price of Jinhui Liquor rose from the opening price of 19 yuan/share on April 17 to the closing price of 22.52 yuan/share on May 6. Furthermore, after throwing out a quarterly report where net profit to the mother increased by more than 20%, the stock price of Jinhui Liquor rose. After the increase, Jinhui Liquor's stock price exceeded the minimum holdings reduction price set by Tiesheng No. 3.

Regarding the specific reason why Tiesheng 3 chose to reduce its holdings at this time, Blue Whale Finance contacted Tiesheng 3 and its related parties, Railway Fund Company, and Shandong Railway Investment Group, but no response had been received as of press release.

Jinhui Liquor told Blue Whale Finance that Tiesheng No. 3, as a financial investor in Jinhui Liquor, made a decision to reduce its holdings based on its own capital plan. Moreover, Tiesheng No. 3 is not the controlling shareholder, actual controller, or co-actor of Jinhui Liquor. The current holdings reduction plan will not trigger a change in Jinhui Liquor's control, nor will it have an impact on Jinhui Liquor's corporate governance structure and future sustainable management.

Jinhui Liquor is an established domestic liquor brewing company and is quite famous in the Gansu region. In 2006, Yate Investment, a subsidiary of Gansu rich Li Ming, took a stake in Jinhui Liquor and listed it on the Shanghai Stock Exchange 10 years later. At the beginning of the listing, Yate Investment held 55.28% of the company's shares.

In 2020, the capital chain of Jinhui Co., Ltd., another company controlled by Li Ming, was in urgent need of capital. Li Ming, which was in urgent need of capital, transferred 30% of Jinhui Liquor's shares to Yuyuan shares under the “Fosun System” for a consideration of 1,837 billion yuan. In the same year, Yuyuan Co., Ltd. also issued an offer to Jinhui Liquor and once again obtained 8% of the company's shares. As a result, Guo Guangchang replaced Li Ming and became the new actual controller of Jinhui Liquor.

However, as the mobility of the Fosun system came under pressure, Jinhui Liquor, which was once favored by Guo Guangchang, was once again put on the shelves.

In September 2022, Yuyuan Co., Ltd. and its co-operator, Hainan Yuzhu, transferred 13% of Jinhui Liquor's shares to Yate Investment and its co-operator, Longnan Colite, for a consideration of 1.937 billion yuan. However, as the company's stock price fell, the two sides signed a supplementary agreement in November 2022 to adjust the transaction price from 29.38 yuan/share to 27.56 yuan/share, and the total transaction price was also reduced to 1,817 billion yuan. After two share acquisitions, Li Ming regained the position of actual controller.

After this shareholding change, Yate Investment and Longnan Colite held a total of 26.57% of the company's shares, while Yuyuan Yuyuan's shareholding ratio dropped to 25%. Due to the close shareholding ratio between the two parties, Yuyuan Co., Ltd. promised in the share transfer announcement that in order to consolidate its controlling interest in Yate Investment, Yuyuan Co., Ltd. will continue to reduce its holdings of the company by more than 5% within 6 months after the share transfer is completed.

In July 2023, Tiesheng No. 3 took over the above shares and became the fourth largest shareholder of Jinhui Liquor. The advent of Tiesheng 3 increased Li Ming's shareholding ratio with Fosun, and in fact added bricks and tiles to the stability of Li Ming's control.

It is worth noting that Tiesheng reduced its shareholding in Jinhui Liquor on the 3rd and is at a point where the State Assets Administration Commission further regulates foreign investment by state-owned enterprises.

In September 2023, the State Council's State-owned Assets Administration Commission issued the “Interim Measures on the Administration of State-owned Enterprise Shareholding”, which regulates the foreign investment behavior of state-owned enterprises. It clearly stipulates that in addition to shareholding shares strategically held or nurtured, state-owned enterprise investments require “exit from equity investments that are seriously inconsistent with the responsibilities of state-owned enterprises, do not have a competitive advantage, are high in risk, and are difficult to grasp.” Furthermore, state-owned enterprises are also prohibited from cooperating in shareholding by proxy shares or real bonds with famous shares.

The majority shareholder of Tiesheng No. 3 is the Railway Fund Company. The latter is an enterprise under the Shandong Railway Investment Group. The actual controller is the Shandong Provincial State-owned Assets Administration Commission. However, after the establishment of the Railway Fund Company, the main tasks were capital raising, railway investment, and capital operation. It invests in Boshen Shares, another listed company, and its business scope covers rail transit equipment components. In comparison, Jinhui Liquor's business is not related to railways or transportation.

Performance has returned to growth, but the road to expansion is still long

Compared to other listed liquor companies, Jinhui Liquor is not developing very fast. As early as 2013, the company's revenue surpassed 1 billion yuan, but it wasn't until 2022 that the company's revenue reached the level of 2 billion yuan.

Compared with this, Shuijingfang's revenue returned to 1 billion yuan in 2016, and revenue surpassed 2 billion yuan in 2017; Laobaijijiu, also a local wine company, broke through the 1 billion dollar revenue mark in 2010 and doubled its revenue 5 years later.

After changing ownership of Fosun in 2020, Jinhui Liquor expected to use Fosun's channel advantages to achieve rapid performance growth, but due to factors such as the pandemic, the company's net profit declined. In 2021 and 2022, the operating income of Jinhui Liquor was 1,788 billion yuan and 2,022 million yuan respectively, and net profit to mother was 325 million yuan and 280 million yuan respectively.

As the impact of the pandemic subsided and the return of the original controlling shareholder, Jinhui Liquor's performance returned to an upward trend. In the first quarter of 2023 and 2024, Jinhui Liquor achieved operating income of 2,548 billion yuan and 1,076 million yuan, respectively, up 26.64% and 20.41% year-on-year; net profit to mother was 329 million yuan and 221 million yuan, up 17.35% and 21.58%, respectively.

Even so, Jinhui Liquor has failed to fulfill its previous performance promises. In 2019, the company signed a reward and punishment plan with the core management team. According to this plan, the company's revenue for 2022 and 2023 will reach 2.5 billion yuan and 3 billion yuan, and net profit will also need to reach 470 million yuan and 600 million yuan. If not achieved, management will be penalized. At the end of 2022, Jinhui Liquor revised this plan, postponed the performance target by one year, and cancelled the management deduction plan. However, judging from the 2023 results, the company's net profit still hasn't reached the target of 470 million yuan.

However, after Li Ming re-assumed the role of actual controller, the pace of Jinhui Liquor's expansion into the national market also slowed down.

As a regional wine company, Jinhui Liquor's main sales come from the Gansu region. As a result, in order to enhance the potential for performance growth, the company is also seeking to enter the national market.

After changing ownership of the Fosun system, Guo Guangchang once expressed his support for Jinhui Liquor. “Fosun is only a long-term investor, never a short-term speculator. We look forward to Jinhui Liquor making full use of Fosun's global advantages, integrating the resources of all parties, strengthening the organizational team, and forming ecological fission.”

Judging from financial data, the nationalization process of Jinhui Liquor developed rapidly between 2020 and 2021, when Fosei entered the system. In 2019, the company's revenue from outside the province accounted for 12.77% of total revenue. From 2020 to 2021, the company's revenue from outside the province increased by 38.46% and 35.71% respectively. By 2022, the company's share of revenue from outside the province had increased to 23.09%.

In terms of the number of dealers, in 2019, the number of distributors of Jinhui Liquor outside the province was 163, accounting for 38.44% of the total number of dealers; by 2022, the number of distributors outside the province had increased to 496, accounting for 67.39% of the total number.

However, after 2022, the growth rate of Jinhui Liquor outside the province slowed down. In 2023, the company's revenue growth rate outside the province was 25.87%, lower than the total revenue growth rate, and the share of revenue outside the province also declined slightly to 22.95%. In the first quarter of 2024, the company's revenue growth rate outside the province declined again to 13.23%.

Regarding future business development plans outside the province, Jinhui Liquor told Blue Whale Finance that the company currently adheres to the strategic path of “laying out the whole country, deepening the northwest, and making key breakthroughs”, and will accelerate the development of the northwest market, East China market, and the northern market around Gansu. Among them, the East China Market and the North China Market are nurturing markets that the company focuses on, using a group buying model to cultivate consumers, create a model market, and gradually advance.