In Feb. 2016, Shenghua Biok's
acquisition plan of acquiring 100% of the shares in Blaze Loong Technology was rejected by CSRC, because the actual
controller of Shenghua Biok breached their commitment during the period June
2015-June 2016. Despite this, Shenghua Biok is likely to restart the
acquisition plan after June 2016.
On 19 Feb., 2016,
Zhejiang Shenghua Biok Biology Co., Ltd. (Shenghua Biok) announced that the
acquisition plan, namely Shenghua Biok acquiring 100% of shares in Chengdu
Blaze Loong Technology Co., Ltd (Blaze Loong Technology), was rejected by China
Securities Regulatory Commission (CSRC). CSRC revealed that the reason the
acquisition plan was rejected was because Shen Peijin, the actual controller of
Shenghua Biok breached its commitment to make no adjustment during the period
June 2015-June 2016. In actuality, Shen Peijin made big business adjustment
during that period, causing Shenghua Biok to fail in their attempt to
restructure.
According to CCM's
investigation, Shenghua Biok stated in June 2015 that their second largest
shareholder, Shen Peijin, had become the largest shareholder and actual
controller of Shenghua Biok, after the Shenghua Group reduced the shares it
held in Shenghua Biok by 10.89%. After that, Shen Peijin committed to making no
adjustment during June 2015-June 2016.
However, in Oct. 2015,
Shen Peijin actively promoted the acquisition plan. Blaze Loong Technology's
total assets were USD244.13 million (RMB1.6 billion) in 2014, accounting for
69% of Shenghua Biok's total assets. If successfully acquired, online gaming is
likely to become Shenghua Biok's main business. Shen Peijin is breaching his
commitment.
Currently, a slowdown in
Chinese economic growth, increasing burden from environmental protection and
product homogenization hinder the development of amino acid enterprises. They
are struggling to develop and are making sweeping transformations and reforms
in order to remain competitive and profitable in the overall industry.
According to Shenghua Biok's annual report, between 2011 and 2014, the CAGRs of
its revenue was -9%. Pesticides and veterinary drugs accounted for 80% of the
company's total revenue, but less than 15% of their gross profit margin. In
addition, it was forced to drop the price of tryptophan due to intense market
competition. In 2015, the average market price of 98% tryptophan was
USD12,800/t, down by 33% YoY.
In order to turn losses
into gains, Shenghua Biok has taken the following measures:
Adjusting industrial
structure
The company has
increased investment in its highly profitable animal vaccine business and
divested unprofitable pesticide subsidiaries, Ningxia Gerui Fine Chemical Co.,
Ltd. and Inner Mongolia Biok Biology Co., Ltd.
Expanding business scope
The company has set foot
in unfamiliar new industries, such as online gaming, seeking new sources of
profit growth. The acquisition of Blaze Loong Technology is a key example. If
successfully, this will bring in more income for Shenghua Biok. In 2014 and H1
2015, Blaze Loong Technology achieved USD11.60 million (RMB76 million) and
USD5.19 million (RMB34 million) in net profit, respectively.
Shenghua Biok has made
preliminary achievements. It's estimated that 2015 net profit would grow by
50%-80% from USD12.65 million (RMB83 million) in 2014. Although the
company has made some achievements, it is not satisfied with that, and it will
take some other measures to further improve its business performance. CCM
believe that Shenghua Biok is likely to restart the plan to acquire Blaze Loong
Technology after June 2016.
CCM will follow up on
this company development.
Shenghua Biok's financial performance, 2011-2014 & Q1-Q3 2015
Source:
Zhejiang Shenghua Biok Biology Co., Ltd.
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Tag: Shenghua Biok