Photo source: Visual China

Blue Whale financial reporter Xu Xiaochun

After three months of surging 743%, on May 7, Zhengdan Co., Ltd. suspended trading and verification, and the terephthalic anhydride (TMA) concept stock continued to rise and fall.

Changes in supply and demand in the TMA market have led to a rapid rise in unit prices in the short term, and TMA concept stocks such as Zhengdan Shares and Baichuan Shares in the secondary market have experienced a corresponding rise in equity and debt. At the end of the first quarter, there was already widespread rumor, and their holdings increased to the top ten shareholders of Zhengdan shares. If they hold shares, they can easily make tens of millions of dollars. In the 17 trading days before the suspension of trading, the market value of Zhengdan shares violently rose by more than 9.5 billion yuan. TMA concept stocks such as Baichuan Co., Ltd. have continued to grow rapidly in the past two days.

The stock price increased sevenfold in three months, and Zhengdan shares suspended trading for verification

In just 17 trading days, the market value of Zhengdan Co., Ltd. became a popular A-share fried chicken by 9.589 billion yuan, and quickly became a major stock with a market capitalization of 10 billion yuan.

Since the beginning of April, TMA (terephthalic anhydride) concept stocks have generally seen a rapid rise. Since April 1, Zhengdan shares have risen from 4.31 yuan/share to 23.88 yuan/share, with a cumulative increase of 454.06%. On February 7 of this year, Zhengdan shares just fell to a record low of 2.83 yuan/share, rising more than 743% in just three months, and the market capitalization surpassed 10 billion dollars. Currently, the market value of Zhengdan shares is 11.79 billion yuan.

In the same period, Zhengtan's bond conversion rate also increased by more than 185%. Trading of Zhengdan Co., Ltd. was suspended for inspection after the opening of the market on May 7. Zhengdan Convertible also suspended trading and suspended share transfers. The company did not disclose the timing of the resumption of trading; it only stated that it would resume trading after completing the relevant inspection work and disclosing the inspection results.

The main business of Zhengdan Co., Ltd. involves the fine chemical industry and the new environmentally friendly materials industry. It uses the upstream petrochemical by-product carbon nine aromatic hydrocarbons to produce high-end, environmentally friendly, and high value-added products. Currently, Zhengdan's main products include terephthalic anhydride (TMA), trioctyl terephthalate (TOTM), vinyl toluene (VT), and quaterylene.

Currently, Zhengdan Co., Ltd. is headed by Cao Zhengguo and Shen Xingxiu. Hexing Enterprise Co., Ltd. and Huaxing Investment (Zhenjiang) Co., Ltd., which are controlled by Cao Zhengguo and his wife, hold 26.25% and 24.32% of Zhengdan's shares respectively. Furthermore, they both hold 100% of Zhejiang Yinwan Private Equity Fund Co., Ltd. - Yinwan Rongshu No. 6 Private Equity Fund, which holds 3% of Zhengdan's shares. Cao Zhengguo and Shen Xingxiu signed a “Concerted Action Agreement” with Hexing Enterprise, Huaxing Investment, and Yinwan Rongshu No. 6 Private Equity Fund. Taken together, Cao Zhengguo and his wife controlled 53.57% of Zhengdan's shares.

This wave of rising stock prices brought Cao Zhengguo and his wife more than 5 billion yuan in paper wealth, but for the whole of last year, the net profit of listed companies was less than 10 million yuan.

From a business perspective, in 2023, Zhengdan Co., Ltd. had 71.11% of its revenue from acid anhydrides and esters, and about 26.55% of its revenue from high-boiling aromatic hydrocarbon solvents. In addition, polymer specialty resin monomers contributed about 2.29% of revenue. Throughout the year, Zhengdan Co., Ltd. achieved operating income of about 1,538 billion yuan. Due to rising raw material prices due to fluctuations in crude oil prices, sales of high-boiling aromatic hydrocarbon solvent products, the main by-product of Zhengdan Co., Ltd. declined, and the company's revenue fell 20.09% year on year.

Last year, the equipment capacity utilization rate of Zhengdan Co., Ltd. was generally poor. The production capacity of paraphthalic anhydride was about 85,000 tons/year, and the capacity utilization rate in 2023 was about 69.75%. Furthermore, the capacity utilization rates of plasticizers, vinyltoluene, etc. were 34.65% and 51.3%, respectively. Due to the low utilization rate of the plant's production capacity and the high fixed cost per unit, the gross margin of high-boiling aromatic hydrocarbon solvent products dropped sharply by 4.48% to -2.52%. The gross margins of acid anhydrides, esters, and polymer specialty resins also declined by 1.76% and 28.2%, respectively. As a result, the annual net profit of Zhengdan Co., Ltd. was only 9.8751 million yuan, a year-on-year decrease of 82.31%.

In the first quarter of 2024, due to changes in market supply, the sales volume and sales unit price of terephthalic anhydride products both increased significantly compared to the same period last year. The operating income and net profit of Zhengdan Co., Ltd. increased by 28.8% and 412.94% respectively over the previous period.

The TMA concept is generally on the rise, and the cow is implanted ahead of schedule

Currently, domestic TMA manufacturers mainly include Zhengdan Co., Ltd., Baichuan Co., Ltd., and Teda New Materials, with production capacity of 85,000 tons/year, 40,000 tons/year, and 30,000 tons/year, respectively. Foreign TMA manufacturers mainly include American iNeos Joliet LLC (TMA production capacity is 70,000 tons/year according to its official website) and Italian Polynt.

Similar to the market and performance of Zhengdan Co., Ltd., Teda New Materials and Baichuan Co., Ltd. also had significant profit increases in the first quarter of this year due to rising TMA prices. Since April, the stock prices of TEDA New Materials and Baichuan Co., Ltd. have risen by 588% and 120.72% respectively.

Judging from market news, the popularity of the TMA concept may be related to the rumor that Innix in the US will permanently discontinue production of a paraphthalic anhydride production plant. Zhengdan Co., Ltd. mentioned in the April 30 announcement that the company is concerned about recent market rumors circulating on platforms such as stock bars about the US Innix permanently shutting down its TMA production facility, but at present, the company has not directly received an announcement from Innix of the United States announcing the permanent discontinuation of production of the paraphthalic anhydride production plant.

Although listed companies were unable to confirm the truth of the rumor, TMA prices began to rise in February due to changes in market supply and demand. According to TMA's quotation, TMA doubled from 17,300 yuan/ton at the end of February to 36,500 yuan/ton on May 6. The above three TMA concept stocks also showed an upward trend at the same time.

As of the end of March, several natural person investors were on the list of the top ten tradable shareholders of Zhengdan shares. Among them, Li Shengjun first entered the top ten shareholders of Zhengdan shares in the 2023 semi-annual report, and then the number of shares held increased to 2.136,800 shares in the first quarter of this year, making him the 7th largest shareholder of Zhengdan Co., Ltd. Roughly calculated the average price during the purchase period before and after, Li Shengjun has made a profit of at least 40 million yuan since holding Zhengdan shares. In addition, Sun Bin and Shen Zuojun, who have invested in Zhengdan shares for a long time, also increased their holdings in Zhengdan shares in the first quarter.

In the 3 consecutive trading days before the suspension of trading, Zhengdan shares had a cumulative increase of about 64.69%. According to Oriental Wealth, the net capital outflow from oversized orders exceeded 100 million yuan during this period, and there was a continuous net inflow of large sums of money from small to medium orders. On May 6, natural persons and small to medium investors made net purchases of 340 million yuan and 405 million yuan respectively. At the same time, institutional investors made large net sales. The total turnover of Zhengdan shares reached 1,505 billion yuan on the same day, with a turnover rate of 14.49%.

By the close of trading on May 8, Teda New Materials and Baichuan Co., Ltd., which are also TMA concept stocks, had gains of 15.97% and 10.05% respectively on the same day.