Summary: Huakang Pharma announced that it plans to terminate its 30,000 t/a xylitol technology upgrading project. The IPO proceeds originally intended to be used in the xylitol project will be invested in its 30,000 t/a D-xylose intelligent upgrading and transformation project.

Zhejiang Huakang Pharmaceutical Co., Ltd. (Huakang Pharma) announced that it plans to terminate its 30,000 t/a xylitol technology upgrading project. The IPO proceeds originally intended to be used in the xylitol project will be invested in its 30,000 t/a D-xylose intelligent upgrading and transformation project.

Huakang Pharma proposes to increase its investment in xylose primarily because: 

• Secure its supply of the raw material xylose
• Xylitol is the most important product of Huakang Pharma. Since 2017, its sales revenue from xylitol has been accounting for more than 50% of its total sales revenue. Xylose is the raw material for the production of xylitol. Therefore, to ensure its supply of raw material xylose, Huakang Pharma set up a wholly-owned subsidiary named Tanshang Huayue Food Science and Technology Co., Ltd. (Tangshan Huayue) in 2018 and initiated the  "industrialisation project of comprehensive utilisation of the press liquor from viscose fibre" to produce 16,500 t/a food-grade xylose using the hemicellulose liquid produced during the production of viscose fibre by Tangshan Sanyou Yuanda Fibre Co., Ltd. (Tangshan Sanyou). However, as Tangshan Sanyou was unable to provide the sufficient hemicellulose liquid source that Huakang Pharma needed, Huakang Pharma terminated the industrialisation project and some of the funds originally intended to be invested in this project will be invested in the 30,000 t/a high-purity crystalline erythritol project.
• With the rising market demand, the domestic xylose market has been in short supply since H2 2021, and at the same time, Huakang Pharma failed to implement the industrialisation project as planned, which greatly restricted the Huakang Pharma's self-supply ability of xylose.
• Although Huakang Pharma had already purchased xylose from its wholly-owned subsidiaries Jiaozuo Huakang Chemicals Co., Ltd. (Jiaozuo Huakang) and Gaomi Tongli Sugar Co., Ltd. and from its associated company Sichuan Yahua Biology Co., Ltd., it still needed to purchase some xylose from other suppliers.
• Xylose price has gone up. In China, the demand for xylose has surpassed the supply since 2021, leading to a surge in the price of xylose. In 2021, the average purchase price of xylose in Q4 rose more than 50% compared to that in Q1. In Q1 2022, xylose price saw a further increase. Huakang Pharma's 30,000 t/a D-xylose intelligent upgrading and transformation project which uses advanced equipment with a higher automation degree can significantly reduce its production costs. 
• Reduce pollution. With the automated production facilities, its production of xylose will be more environmentally friendly. 
• Huakang Pharma is able to meet the rising demand for xylitol. Although there is rising demand for xylitol, Huakang Pharma's current and potential capacities are able to meet the rising market demand and customers' demand as the company initiated plans to build new workshops for the refining of sugar alcohols and upgrade the technology of its original production lines in recent years to increase its production and supply of xylitol.

Overview of the D-xylose intelligent upgrading and transformation project:

• Total investment: USD45.68 million (RMB300 million) (comprised of some of its IPO proceeds originally intended to be used in other projects and its self-raised funds), which are planned to be invested every year during the construction period
• Consumption of major raw material: 150,000 t/a corncobs
• Production capacity: 30,000 t/a D-xylose
• Construction content: To build an automated production line for D-xylose, adopt new a production process and install energy-efficiency facilities such as chromatographic separation equipment, membrane separation equipment, continuous ion-exchange systems, multi-effect evaporator, etc.
• Construction period: 18 months

In Jan. 2021, Huakang Pharma raised a total of USD209.34 million (RMB1.37 billion) in its Initial Public Offering (IPO). The funds will not only be used in the above-mentioned D-xylose project, but also will be invested in the following projects.