Two symbols, three companies.

"Investors Net" Cai Jun

Recently, Shanghai Hile Bio-technology (603718.SH, hereinafter referred to as the 'company') announced a significant asset acquisition and divestment plan.

According to the plan, the company plans to purchase 55% of the equity of Ruisheng Bio held by Meilun Management in cash, at a price of 0.935 billion yuan. At the same time, the company will sell 30% equity of Wuxi Bio held by the company to Wuxi Bio for a price of 0.108 billion US dollars (approximately 0.71 billion yuan).

This multi-party transaction involves two symbols and three companies. Shanghai Hile Bio-technology plans to maneuver back and forth, like playing with an abacus, with various strategies and calculations fully displayed.

The overestimated value in the abacus.

One in, one out, Shanghai Hile Bio-technology starts to play 'the abacus'.

The plan shows that the company's acquisition of Ruisheng Bio has an astonishing appreciation rate of 952.12%. The symbol primarily operates in oral repair and regenerative products, held by Meilun Management, with the ultimate controller being Zhang Zhengwu, who also owns enterprises such as Qirui Regenerative Medicine, Anell Cornea, and Elskin Tissue.

In 2022, Ruisheng Life Sciences planned to list on the A-share market, and the following year gave incentives to executives, but ultimately postponed the listing due to changes in the market environment. When the plan could not keep up with the changes, a new scheme was born. In July 2023, Shanghai Hile Bio-technology and its controlling party signed an equity pledge contract with two companies under Zhang Zhengwu, with the latter obtaining a loan of 0.35 billion yuan by pledging 45% of the shares in Ruisheng Life Sciences they held.

Mr. Zhang, a bookkeeper, first carefully observes and understands the entire abacus before calculating the beads. Over the years, Ruisheng Life Sciences has been internally complex. As of April this year, related parties to the company borrowed a total of 0.111 billion yuan, mainly for daily operations, and all funds were repaid in September.

In terms of performance, as of April in 2022, 2023, and 2024, Ruisheng Life Sciences' revenue was 0.117 billion yuan, 0.225 billion yuan, and 0.071 billion yuan respectively, while net income attributable to shareholders was 0.051 billion yuan, 0.112 billion yuan, and 0.034 billion yuan. In the trading plan, the company committed that the non-recurring net profit for 2024, 2025, and 2026 should be at least 0.125 billion yuan, 0.137 billion yuan, and 0.151 billion yuan respectively, with a cumulative audited net profit not less than 0.414 billion yuan.

Based on this calculation, Ruisheng Life Sciences' promised growth rate is approximately 10%, which may be the basis for the company's high premium acquisition. However, compared to listed companies, Zhenghai Bio-tech's non-recurring net profit in 2023 decreased by 2.71% year-on-year. It should be noted that Zhenghai Bio-tech's oral repair membrane is a leading domestic product, but the sales in the first half of this year were 0.096 billion yuan, a 9.8% decrease from the previous year.

The question of whether Ruisheng Life Sciences' high valuation is reasonable has prompted the Shanghai Stock Exchange to send an inquiry letter to Shanghai Hile Bio-technology, requesting an explanation of its rationale. At the same time, the company was also questioned about the main customers of the acquisition target, core competitiveness, and other related matters.

In response, the company emphasized the positive market outlook, believing that the aging population, dental implant fees, domestic alternatives, and other external factors are improving, hence bullish on the future of the acquisition target.

The Three-Finger Combination Test

In the abacus world, there is a technique called the Three-Finger Combination, which involves simultaneously moving the thumb, index, and middle fingers. This technique can improve the efficiency of bead calculation, but it is challenging, requiring coordinated finger movements to be both stable and accurate. Throughout the transaction, involving Shanghai Hile Bio-technology, Ruisheng Life Sciences, and Wuxi Bio, is like a Three-Finger Combination.

The plan shows that the company stated that the funds for the acquisition of Ruisheng Bio come from its own assets and the transfer payment of selling 30% equity of Wuxi Bio-Hyde; if there is any delay in the process, the company will raise part of the funds in stages through bank M&A loans and loans from the actual controller. The acquirer of Wuxi Bio-Hyde is Wuxi Bio, and after the transaction is completed, the target will become a wholly-owned subsidiary of Wuxi Bio.

In other words, Shanghai Hile Bio-Technology's 'tri-fingered allocation' needs both stable funding and accurate timing. As of the first half of this year, the company's monetary funds amount to 0.037 billion yuan. In August, the company announced its intention to increase short-term loans by 0.25 billion yuan to its controlling shareholder Shanghai Haoyuan for business development needs.

In comparison to the overall transaction, the company plans to acquire assets for 0.935 billion yuan, with proceeds from selling assets at around 0.71 billion yuan, so the financial arrangements need to be carefully calculated.

In fact, Wuxi Bio-Hyde, mainly engaged in CDMO (new drug contract research and manufacturing), has also gone through ups and downs. Earlier, the enterprise signed a manufacturing supply contract with a global vaccine giant for a total amount of approximately 3 billion US dollars, mainly for COVID-19 vaccines. In 2021, the enterprise's production revenue reached 0.89 billion yuan, but later, impacted by significant exchange losses, the non-GAAP net income in the third quarter of 2023 turned into a loss.

Based on the valuation of Wuxi Bio selling Wuxi Bio-Hyde's equity, the appreciation rate is 22.98%, which is quite different from the high premium purchase of Ruisheng Bio. The exchange has requested the company to explain the fairness of the selling price, whether the transaction sufficiently safeguards the interests of the listed company, and more in the inquiry letter.

The company responded that there are few similar transactions in the market, so it chose the medical services industry as an alternative, such as the acquisition cases of Meinian Onehealth Healthcare Holdings and BGI Genomics, with appreciation rates of 694.36% and 73.54%, respectively.

Perhaps, timely selling of Wuxi Bio-Hyde is more important for the company.

The scene in the accounting room

Mr. Zhang's job is to inventory the silver and goods in the room in order to carry out daily operations. For Shanghai Hile Bio-Technology, the main business is not ideal, and internal goodwill and related transactions need to be carefully assessed.

In the first half of this year, the company's revenue and net income attributable to shareholders of the listed company were 0.11 billion yuan and 0.015 billion yuan respectively, each down 9.5% and 81.5% year-on-year. The performance decline is mainly due to the decrease in product prices, the decline in performance of Wuxi Bio, and the impact of asset divestitures in the same period last year.

In fact, the company's main IVD (in-vitro diagnostics) and animal vaccine businesses have entered a downward phase. In 2018, the company acquired Jiemenshi Biology, a company that sells test kits, and later voluntarily recalled related products, resulting in business difficulties. In the first half of this year, Jiemenshi Biology's revenue was 0.051 billion yuan, down 12% year-on-year; during the same period, the goodwill balance generated by the enterprise was still 0.224 billion yuan.

As for animal vaccines, the performance has slightly improved. Under multiple pressures such as the reduction in government procurement and losses in the upstream farming industry, the company's subsidiary, Yangling Jinhai, the main business, introduced new management this year. The revenue in the first half of this year was 0.056 billion yuan, a 15.4% year-on-year growth, with a net loss of -0.02 billion yuan, a narrower loss compared to the same period in 2023.

However, in January of this year, the company and the current chairman, Zhang Haiming, received a warning letter from the Shanghai Regulatory Bureau of the China Securities Regulatory Commission, mainly because during a random on-site inspection, it was found that the company did not accurately disclose financial data. During the transfer of two technologies by Yangling Jinhai in 2023, revenue of 9 million yuan was recognized, but it was found during the inspection that the technical information had not been delivered to the transferee.

Furthermore, the warning letter also mentioned that in 2021 and 2022, the company under-calculated the related-party loans in its wealth expenses. As of the first half of this year, the total principal and interest from Yangling Jinhai to the controlling shareholder of the company, Shanghai Haoyuan, amounted to 0.17 billion yuan. (Qianjing Financial produced) ■