Caixin News Agency, November 7th (Reporter Chen Kang) Zhejiang Wansheng (603010.SH) announced a month ago its intention to acquire 59.33% of the equity of Guangzhou Shnergy Innovative Materials Co., Ltd. (referred to as Shnergy New Materials) for 0.378 billion yuan. At the earnings conference for the third quarter of 2024 held by the company today, they responded to investors' questions about the progress and reasons for the acquisition.

The company's secretary and vice president, Qian Ming, both stated that the equity delivery of Shnergy is progressing smoothly at the moment and is expected to be consolidated in November this year. In terms of performance, Guangzhou Shnergy had a revenue of 0.405 billion yuan in 2023, with a net profit of 81.29 million yuan; from January to June this year, the revenue was 0.217 billion yuan, achieving a net profit of 47.72 million yuan, with a comprehensive gross margin of over 40%.

"Shnergy has many new products and new technologies, limited by space and capital, new production capacity has not been established on a large scale. After our acquisition, Wansheng, all of Shnergy's reserved new products and new technologies will be quickly deployed, making full use of our existing plant and public works in Weifang, Shandong. The cooperation between the two sides will quickly complete the production of new products and generate revenue and profits," said Zhou Sanchang, the company's president, at the earnings conference.

Bullish on Shnergy's growth potential is one of the reasons for the acquisition. Zhou Sanchang stated that Shnergy has flame retardants for drip resistance, domestically produced silicon-containing toughening agents, and the polymer processing aids with the highest gross margin among three product types. In the future, with the continuous growth in demand for new energy vehicles and 3C consumer electronics markets, the implementation of China's smart cities, SpongeBob cities, urbanization construction, old residential area renovation, and breakthroughs in precious metal catalysts and key raw materials domestically, the demand for Shnergy's products will continue to grow.

In addition, there is strong synergy between Shnergy New Materials and Wansheng. Zhou Sanchang said, "Shnergy's drip-resistant agents used in PC, ABS, or PC/ABS alloy engineering plastics, in combination with the company's flame retardants, enhance flame retardant and drip resistance performance; Guangzhou Shnergy's ASA, ACR powder can horizontally expand the company's range of polymer additives. Furthermore, Shnergy's drip-resistant agents, toughening agents, and other polymer additives, combined with Wansheng's flame retardants, can achieve complementary and deep binding in terms of customer channels."

Wansheng's main product is phosphorus-based flame retardants, mainly used in the automotive, consumer electronics, home appliances, and network communications equipment industries. At the earnings conference, the average tax-free price of phosphorus-based flame retardants from January to September 2024 is 0.0159 million yuan/ton, and the current selling price is basically at a low point; the ongoing innovative products of the company include new types of nylon flame retardants, copper-clad board flame retardants (already in mass production and sales), and TCPP substitutes (currently in the customer verification stage).

Around 40% of Wansheng's revenue comes from overseas, and it has established sales subsidiaries such as Wansheng USA, Wansheng Europe, and Wansheng UK. Some investors are concerned about the impact of US anti-dumping/countervailing duties, Zhou Sanchang stated, "The US Department of Commerce issued a preliminary countervailing duty on October 1st, applying to the company at the lowest countervailing duty rate of 35.47%, while other Chinese producers/exporters are at 50.15%. The final conclusions and time of the anti-dumping and countervailing duty have yet to be announced."