Transformation amid performance decline.

"Investor Network" Jordan.

Sichuan Hexie Shuangma (000935. SZ) recently announced plans to invest 1.596 billion yuan to acquire 92.17% of Shenzhen Jianyuan's equity, which has attracted widespread attention from the market.

This trade marks the traditional building materials enterprise's official entry into the biomedical industry, also indicating that Sichuan Hexie Shuangma has chosen to seek new breakthroughs through cross-industry acquisitions as its main business faces difficulties.

From cement to medicine.

Sichuan Hexie Shuangma initially focused on cement and construction aggregates and was listed on the main board of the Shenzhen Stock Exchange in 1999. After years of development, the company has gradually transformed into an enterprise primarily engaged in industrial investment and private equity fund management, with its currently managed assets including building materials production and manufacturing enterprises as well as private equity investment fund management companies.

In comparison, Shenzhen Jianyuan specializes in the research, production, and sales of peptide drugs, with its product matrix covering important medical fields such as diabetes treatment, tumor treatment, and immune modulation. In recent years, peptide drugs, especially semaglutide and others, have seen increasing attention and market demand in the pharmaceutical market. According to Frost & Sullivan's industry research report, the global peptide drug market is entering a rapid growth phase, with the market size expected to surge to 189 billion dollars by 2028.

Shifting from the building materials industry to biomedical undoubtedly represents a bold attempt and breakthrough for Sichuan Hexie Shuangma. The company pointed out in its announcement that this acquisition aims to leverage Shenzhen Jianyuan's technological accumulation, professional team, and market resources in the biomedical field to assist in optimizing and upgrading its business structure. Sichuan Hexie Shuangma plans to rely on Shenzhen Jianyuan's mature management structure and operational system to accelerate its layout in the biomedical market and explore innovative business models and profit paths to further enhance the company's overall competitiveness and market position.

In terms of fundraising, Sichuan Hexie Shuangma plans to raise a total of 1.596 billion yuan through its own and self-raised funds to completely acquire 92.17% of the equity stake of Shenzhen Jian Yuan held by Xingyin Medical and Xingyin Group. Among them, 1.36 billion yuan will be used to acquire the 78.54% shares held by Xingyin Medical, and the remaining 0.236 billion yuan will be used to acquire the 13.63% shares held by Xingyin Group.

On October 21, Sichuan Hexie Shuangma held a board of directors meeting, reviewed, and approved the proposal to acquire Shenzhen Jian Yuan, and officially signed the equity transfer agreement with Xingyin Medical and Xingyin Group. Subsequently, the company paid the first installment of the equity transfer as agreed, and the acquisition matter has been advanced.

On November 5, Sichuan Hexie Shuangma, Xingyin Medical, and Xingyin Group collectively submitted a business change registration application for the equity transfer to the Shenzhen Municipal Market Supervision Administration. On that day, Shenzhen Jian Yuan received the "Registration Notification" issued by the Market Supervision Administration, marking the completion of the business change registration procedure for the equity transfer. Thus, Sichuan Hexie Shuangma officially became the holder of 92.17% of Shenzhen Jian Yuan's equity, with Xingyin Group and individual Yao Zhiyong holding the remaining 3% and 4.83% of the equity, respectively.

Decisions made amidst continuously declining performance.

At the end of September this year, the China Securities Regulatory Commission introduced the new policy of "six mergers and acquisitions," opening the door wide for cross-industry mergers and acquisitions, allowing the acquisition of unprofitable assets, and inviting private equity funds to join the overall picture of listed companies' mergers and acquisitions. In this context, the acquisition of Shenzhen Jian Yuan by Sichuan Hexie Shuangma is a brave attempt in this wave.

Looking back at the development trajectory of Sichuan Hexie Shuangma, it is not difficult to find that its performance growth has shown signs of fatigue and urgently needs new business to inject vitality. From 2021 to 2023, the company's revenue fluctuated around 1.2 billion yuan, and although net income experienced fluctuations, the overall downward trend is clear. Especially in the first half of 2024, revenue and net income declined by 14.08% and 75.06%, respectively. In the first three quarters, revenue and net income continued to decline, down 7.61% and 63.41% year-on-year, making the situation difficult to describe as optimistic.

This predicament is closely related to the continued downturn in the real estate market. As the company's core business, the cement business has been severely impacted. From a sales volume of 10.9 million tons in 2017 to 2.08 million tons in 2023, and then to an estimated 2 million tons in 2024, sales have been in decline. The entire cement industry is also facing severe challenges, with national cement production in the first half of 2024 down 10% year-on-year, achieving the lowest level for the same period since 2011, and the market is quite chilly.

In response to this situation, Sichuan Hexie Shuangma began business adjustments in 2017, divesting part of its cement business to subsidiaries and entering the field of private equity investment management and sports training business, although the sports training business exited in 2019. Now, the core of the company's business has gradually shifted towards private equity investment management, with its revenue share even surpassing that of the cement business. In the first half of 2024, the revenue shares of cement and private equity investment management were 39.97% and 45.83%, respectively.

However, the downturn in the cement business is hard to conceal, with revenue scale and gross margin declining year by year, even falling into the quagmire of losses. In 2023 and the first half of 2024, the gross margins were 14.1% and -1.76% respectively, indicating a severe situation. If this continues, it may drag down the overall business development of the company.

In contrast, the private equity investment management business has been steadily rising, becoming a new engine for the company's development. Based on this, sichuan hexie shuangma has once again taken a step into cross-industry expansion, focusing on the biomedical field in order to explore new growth points.

However, cross-industry expansion is not easy. Although sichuan hexie shuangma has achieved success in the private equity investment management field, entering the technically complex, closely regulated, and highly competitive biomedical field will face many unknowns and challenges. How to effectively integrate biomedical operations into existing businesses to achieve simultaneous improvement in performance and competitiveness has become a critical issue that sichuan hexie shuangma urgently needs to solve in the future. (Produced by Thinking Finance)■