Financial Association News on November 22 (Reporter: Zhang Liangde) In today's tj darentang (600329.SH) shareholders' meeting, the company approved the proposal to sell 13% of the equity of China-US Tianjin Smith Kline Pharmaceutical Co., Ltd. (referred to as China-US Smith Kline) to Hengrui Oncology. Earlier, some small and medium shareholders expressed regret on the internet and at the shareholders' meeting about the company's sale of the equity stake. In response, the company's chairman, Zhang Mingrui, stated, 'China-US Smith Kline is an excellent company, and the main reason for this equity sale is the expiration of the 40-year cooperation period.'

A shareholder inquired about the delivery time of China-US Smith Kline's equity. The company's Chief Financial Officer, Ma Jian, stated that the equity sale still needs to undergo anti-monopoly review by the State Administration for Market Regulation of Hengrui Oncology, which will take some time.

Previously, Hengrui Oncology had stated in its company announcement that the joint venture agreement with China-US Smith Kline was originally set to expire in September 2024 but has been extended to June 2025. Therefore, the equity transaction is expected to be completed by June 2025 at the latest.

China-US Smith Kline is a subsidiary in which tj darentang has a stake, with the company currently holding 25% of its shares. Previously, tj darentang announced that the company and its controlling shareholder Tianjin Pharmaceuticals intend to transfer their respective holdings of 13% and 20% of China-US Smith Kline's shares to Hengrui Oncology (China), at prices of 1.759 billion yuan and 2.706 billion yuan respectively. Upon completion of the transaction, tj darentang, Hengrui Oncology (China), and Hengrui Oncology (United Kingdom) will hold 12%, 33%, and 55% of China-US Smith Kline respectively.

The company's OTC pharmaceutical brands including Xin Kangtaike, Fenbide, Baiduobang, Changchongqing, and many others have leading sales in the domestic market for similar products. According to the company's announcement, as of May 31, 2024, the audit results show that China-US Smith Kline's net assets amount to 1.009 billion yuan, and the assessed value of shareholders' equity is 9.996 billion yuan, with an appreciation rate of 890.41%. Based on this calculation, tj darentang's transaction amount of 1.759 billion yuan represents a premium of approximately 35% over the asset appraisal value.

From 2018 to 2023, China-US Smith Kline's net income was 0.509 billion, 0.569 billion, 0.479 billion, 0.61 billion, 0.705 billion, and 0.98 billion respectively, with a performance growth of 92.53%.

However, the high-speed growth of China-US Smith Kline's performance is due to special external factors, and there is still a certain market uncertainty as to whether this performance growth rate can be maintained in the future. Company personnel told Financial Association reporters that the high performance of China-US Smith Kline in the past two years is somewhat related to the epidemic.

According to company sources, when the cooperation period expires, shareholders can choose to liquidate or be acquired by the major shareholder. However, for us, the net assets of the GlaxoSmithKline company are not high, so liquidation is not appropriate. At the same time, domestic restrictions on the proportion of foreign equity in enterprises have been lifted, allowing foreign entities to own up to 100% independently. Therefore, the major shareholder He Liang also proposed acquisition.

After this transaction is completed, tj darentang will receive 1.759 billion yuan in funds, and the company's cash flow will be replenished. The company previously announced that this transaction aligns with the focus on the main business concept. The transaction funds can be used for business expansion, including but not limited to mergers and acquisitions, research and development, market expansion, and other projects. However, during exchanges between journalists from Caixin and some attending shareholders, it was found that some shareholders expressed a preference for the company to use the funds for dividends or share buybacks.

It is worth noting that tj darentang's recent asset disposal activities are active, and the focus on the operation route of traditional Chinese medicine business is becoming clearer. The company announced on the 12th of this month that tj darentang will price the equity of its subsidiary Tianjin Zhongxin Pharmaceutical Co., Ltd., and inject it into its holding shareholder Tianjin Medical Group Co., Ltd. (referred to as "Medical Group") as capital increase. The company will convene a shareholders' meeting next month to review relevant proposals.

Previously, the Medical Group promised to inject the relevant business of the pharmaceutical commerce business sector company into the listed company's platform through external transfer or asset restructuring. The shareholders' meeting next month will review the "Proposal on the Change of Commitments by Tianjin Medical Group Co., Ltd.", which adds content related to solving the issue of inter-industry competition between the listed company and the controlling shareholder by integrating and controlling the pharmaceutical commerce business sector companies under the listed company.

Company officials said that for tj darentang, due to the weak profitability of the pharmaceutical commerce company, changing commitments through the Medical Group's integration of the pharmaceutical commerce business sector is a very good choice for both the listed company and the company's shareholders.