KPC Pharmaceuticals, Inc. plans to acquire a 51% stake in China Resources Shenghua by paying CNY 1.791 billion. The problem of industry competition between the company and China Resources Sanjiu in the BloodTekong soft capsules will be resolved. The shareholder's equity value of China Resources Shenghua is valued at CNY 3.512 billion, with an appreciation rate of 277.65% compared to its net asset book value of CNY 930 million in financial statements. However, the premium rate has decreased from the time of China Resources Sanjiu's acquisition and the net income has doubled.
On June 7, Cailian News reported that (Reporter Zhang Liangde) in the second year after completing the acquisition of KPC Pharmaceuticals, China Resources Sanjiu intends to transfer the controlling rights of China Resources Shenghuo Holdings to KPC Pharmaceuticals for 1.791 billion yuan to resolve the competition problem between KPC Pharmaceuticals and China Resources Sanjiu for Xuesaitong soft capsules.
Previously, a source close to the company told Cailian News that China Resources Sanjiu plans to integrate KPC Pharmaceuticals' business and team in stages of 100 days, 1 year, and 3 years, and the competition problem between KPC Pharmaceuticals and China Resources Sanjiu in Xuesaitong and pharmaceutical distribution will be solved within 5 years, with China Resources Shenghuo's Xuesaitong business being more easily integrated.
China Resources Shenghuo's Performance Doubled, Premium 277% Acquisition
KPC Pharmaceuticals announced tonight that the company plans to use its own or raised funds of CNY 1.791 billion to acquire China Resources Sanjiu's 51% equity of China Resources Shenghuo held by China Resources Sanjiu, and after the completion of the equity transfer, KPC Pharmaceuticals will consolidate China Resources Shenghuo's financial statements.
The company said that this transaction is an important measure for the company to integrate its Xuesaitong business, which is conducive to optimizing and integrating related business areas, promoting high-quality development of the traditional Chinese medicine industry chain represented by Xuesaitong, leveraging the synergies of the two companies in products, channels, brands and supply chains, enhancing the company's business scale in the field of cardiovascular and cerebrovascular disease treatment, and can solve the competition problem between the company and China Resources Sanjiu in Xuesaitong soft capsules.
Introduction to KPC Pharmaceuticals' brand '777' (Photo by Cailian News Reporter)
According to the asset appraisal report, the evaluation value of China Resources Shenghuo is CNY 3.512 billion, and the value-added rate is 277.65% compared with the net asset book value of CNY 930 million in its financial statements.
From the evaluation data, the premium rate of this acquisition is relatively high, but when China Resources Sanjiu acquired 100% equity of China Resources Shenghuo for CNY 1.89 billion in 2016, the value-added rate of the transaction was as high as 387.92%, and the 277.65% value-added rate has been reduced to some extent.
At the same time, after 8 years of support and development by China Resources Sanjiu, China Resources Shenghuo's performance has doubled. According to China Resources Sanjiu's announcement, before being acquired by China Resources Sanjiu in 2015, Shenghuo Pharmaceuticals' operating income was CNY 465 million, and net income was CNY 97.531 million. By 2023, China Resources Shenghuo's operating income was CNY 750 million and net income was CNY 202 million.
It should be noted, however, that China Resources Sanjiu promised that China Resources Shenghuo's net income would not be less than CNY 206 million in 2024, but the promise was not fulfilled. At the same time, China Resources Sanjiu will transfer the CNY 1.411 billion goodwill formed by the external acquisition of China Resources Shenghuo to KPC Pharmaceuticals, and will need to perform impairment tests every year in the future. If China Resources Shenghuo's future operating condition fails to meet expectations, goodwill impairment will have a significant impact on KPC Pharmaceuticals' financial condition.
KPC Pharmaceuticals Unifies the Xuesaitong Soft Capsule Market
Some institutional investors told Cailian News that after China Resources Sanjiu acquired KPC Pharmaceuticals, in addition to expecting China Resources to empower its business channels, solving the competition problem is also the company's expected growth point.
KPC Pharmaceuticals' Xuesaitong and pharmaceutical distribution business are in direct competition with China Resources Sanjiu. Xuesaitong soft capsules are only produced by KPC Pharmaceuticals and China Resources Shenghuo in the national market. According to the Kaisa database and the research report of Guotai Junan Securities, the sales scale of in-hospital and retail markets of Xuesaitong soft capsules totaled more than CNY 1 billion in 2022.
Overview of manufacturers of Xuesaitong soft capsules and Xuesaitong type drugs
It is worth noting that KPC Pharmaceuticals launched the '777' brand this year, proposing the slogan '777 is Sanchi', and plans to build '777 Lixuan Wang' (China Resources Shenghuo) and '777 Luotai' (KPC Pharmaceuticals) Xuesaitong soft capsules into core large single products for the prevention and treatment of cardiovascular and cerebrovascular diseases.
Introduction to KPC Pharmaceuticals' brand '777' (Photo by Cailian News Reporter)
At present, the "777" product line is still relatively thin, but according to the reporters at CaiLian News who learned from the company, the company will continue to develop related products of Sanqi in the future to enrich the product line. The "777" brand may become the main brand for KPC Pharmaceuticals, Inc. and China Resources Sanjiu to enter the elderly healthcare product market.
Another industry competition issue of concern to institutional investors is the pharmaceutical distribution business. In 2023, the business of pharmaceutical distribution had sales revenue of 3.322 billion yuan for KPC Pharmaceuticals, Inc., accounting for 43.12% of the company's revenue, but the gross margin was only 14.49%. The aforementioned institutional investors told reporters that the proportion of the company's sales for this business was large, but the profitability was poor. After being integrated into the China Resources Sanjiu system, on the one hand, there was overlap with the parent company's business, and on the other hand, the company can rely on China Resources Sanjiu's channels and distribution business capabilities. The support of pharmaceutical distribution business for drug production business is not as important as before, so it would be more advantageous for the company's development and overall valuation to exclude this business.