Haizheng Pharmaceutical Details The Acquisition Of 4.4 Billion "Profit Dairy Cow", Saying That The Valuation Of 9 Billion "Is Relatively At A Prudent Level"

Two weeks ago, Haizheng Pharmaceutical Co., Ltd. (600267. SH) received an inquiry letter from Shanghai Stock Exchange after announcing its plan to purchase the remaining 49% equity of the holding subsidiary Hanhui Pharmaceutical Co., Ltd. (hereinafter referred to as "Hanhui pharmaceutical") with RMB 4337-4484 billion. Sh responded to the inquiry letter on the evening of August 5, clarifying the transaction valuation, the source of transaction funds and other issues.

The A-share social responsibility research group of the 21st Century Capital Research Institute has paid attention to the transaction for the first time, which is a key case followed by the research group. Prior to that, on July 4, the research group had reported "embarrassing loss of 10 billion revenue: Haizheng pharmaceutical's" asset sale vortex ".

According to the plan, Haizheng pharmaceutical will issue shares, convertible corporate bonds and pay cash to HPPC holding SARL (HPPC) to purchase 49% equity of Hanhui pharmaceutical. The estimated transaction price range is tentatively set at 4.337 billion-4.484 billion yuan, and the matching fund will not exceed 1.5 billion yuan.

After the completion of the transaction, Hanhui pharmaceutical will become a wholly-owned subsidiary of Haizheng Pharmaceutical Co., Ltd., while HPPC, previously a shareholder of Hanhui pharmaceutical, will indirectly participate in Haizheng pharmaceutical through restructuring. After the completion of the transaction, HPPC is expected to hold more than 10% of the shares in the listed company, and has the right to nominate a candidate for director.

"Equity + cash + directional convertible bonds" in one, with a valuation of 9 billion yuan, and the introduction of Hillhouse capital, these elements have made this transaction the focus of the market.

9 billion valuation "at a relatively cautious level"

According to the plan, Hanhui pharmaceutical department was jointly established by Haizheng pharmaceutical and Pfizer in 2012, with shareholding ratios of 51% and 49%, respectively. The cooperation between the two sides was once hailed as a model of "Sino foreign marriage" in the pharmaceutical industry.

However, in 2017, based on the consideration of the adjustment of its global business strategic layout, Pfizer chose to withdraw from Haizheng Pfizer from commercial arrangements, transferred its 49% equity to its wholly-owned subsidiary HPPC, and then transferred 100% of HPPC's equity to a third-party sapphire (which is controlled by the fund managed by Hillhouse capital). Haizheng Pharmaceutical Co., Ltd. gave up the preemptive right for the above equity transfer. In 2018, Haizheng Pfizer changed its name to Hanhui pharmaceutical.

The Shanghai Stock Exchange first asked why Haizheng Pharmaceutical Co., Ltd. further acquired the minority equity of Hanhui pharmaceutical when it gave up the preemptive right in the early stage.

In this regard, Haizheng pharmaceutical replied, "due to the influence of the capital situation and the lag of refinancing process at that time, the listed companies failed to meet Pfizer's requirements for full cash payment and payment time. Due to the actual difficulties at that time, it was actually unable to undertake the equity of Hanhui pharmaceutical sold by Pfizer. In order to promote friendly cooperation with Pfizer and ensure the smooth progress of the related varieties' real estate, the Public Security Bureau of China (Haizheng) Co., Ltd The company amended the articles of association of the joint venture company, essentially giving up the right to transfer back the equity of the joint venture after Pfizer's exit to Pfizer according to the requirements of the articles of association before the modification, so as to complete the withdrawal transaction of Pfizer. "

In addition, the valuation difference between the two transactions of Hanhui pharmaceutical has also become the focus of regulatory attention.

On November 10, 2017, Pfizer transferred 100% equity of HPPC to sapphire, which paid a total of $28639 million to Pfizer for the purchase of such equity. After the equity transfer, sapphire indirectly held 49% equity of Hanhui pharmaceutical. According to the spot exchange rate on the signing date of the agreement, the transaction price was RMB 1.902 billion, and the corresponding overall valuation of Hanhui pharmaceutical was RMB 3.881 billion.

At present, Haizheng pharmaceutical plans to purchase 49% equity of Hanhui pharmaceutical with RMB 4.337 billion to RMB 4.484 billion. The corresponding overall valuation range is RMB 8.85 billion to RMB 9.15 billion. Taking the average value of its estimated value, the value of Hanhui pharmaceutical is about 9 billion yuan.

Haizheng pharmaceutical explained in the reply letter that "compared with the valuation of the completed acquisition of pharmaceutical subject matter of A-share listed companies whose pricing benchmark date is after 2017 and the transaction valuation, PE of Hanhui acquisition is 16.36-16.91 times, lower than the industry average level (20.32 times), and the transaction valuation is relatively at a prudent level".

At the same time, Haizheng pharmaceutical further listed three reasons for the increase in valuation.

On the one hand, "compared with the previous transaction, Hanhui pharmaceutical has obtained the certificate of high-tech enterprise, and the process of real estate has made a certain degree of progress, and the expectation is more clear". In addition to the varieties that are not planned to be transferred, under normal circumstances, it can realize the real estate of duodayi, tezhixing, jiaqianglong and metoprolol in the next 3-4 years.

On the other hand, "in 2017 and before, Hanhui pharmaceutical was mainly responsible for promoting and selling the products injected by Pfizer and listed companies during the transitional period, and its business was relatively single. Since 2018, Hanhui pharmaceutical has formed a new profit growth point by developing drug promotion business. At the beginning of the year, the main products that have been promoted by the company include the product promotion of the company. Hanhui has more abundant customer resources and more diversified business types. It is expected that related businesses will continue to grow in the future. "

According to the announcement, in 2017, 2018 and 2019, Hanhui pharmaceutical's revenue from distribution and promotion of Pfizer products accounted for about 58%, 42% and 33% of the total revenue respectively. With the development of its business, the proportion of distribution and promotion of Pfizer products is gradually declining.

In addition, Haizheng pharmaceutical also mentioned that "Hillhead can bring advantageous resources to Hanhui pharmaceutical", such as assisting Hanhui in promoting the introduction of new products, signing cooperation agreement between Hanhui and Gaoji Medical Co., Ltd., opening up retail channels and cooperation in Internet online medical treatment, etc.

Strategic transformation from imitation to independent innovation

It plans to spend 4.4 billion yuan to acquire the remaining 49% equity. Why does Hanhui pharmaceutical become the "good heart" of Haizheng pharmaceutical?

According to the public information, Hanhui pharmaceutical was established in 2012, and its business scope includes the development, production, promotion and sales of tablets, hard capsules, freeze-dried powder injection (including anti-tumor drugs), small volume injection (including anti-tumor drugs), sterile powder injection, etc.

The announcement disclosed that up to now, the sales team of Hanhui pharmaceutical has more than 1600 people, and the sales area is divided into 8 regions, covering 31 provinces, autonomous regions and municipalities directly under the central government, and the sales scope includes more than 7300 hospitals.

From the data, Hanhui pharmaceutical has developed rapidly in recent years.

According to the announcement, from January to march in 2018, 2019 and 2020 (without audit), the revenue of Hanhui pharmaceutical was 3.819 billion yuan, 4.299 billion yuan and 1.137 billion yuan, respectively. The net profits attributable to the owners of the parent company were 529 million yuan, 541 million yuan and 255 million yuan (not audited), and the net cash flow from operating activities was 470 million yuan, 489 million yuan and 429 million yuan (not audited) respectively ）。

It should be pointed out that in 2019, the revenue of Hanhui pharmaceutical is 4.299 billion yuan, accounting for 49% of the revenue of listed companies (11.1 billion yuan). In the same period, the net profit of the listed company was 541 million yuan. Compared with that, the net profit of the listed company in that year was only 93 million yuan. Hanhui pharmaceutical can be regarded as the "profit cow" of Haizheng pharmaceutical industry.

In addition, the Shanghai Stock Exchange is also concerned about the source of funds for the transaction.

Haizheng pharmaceutical disclosed in the plan that 1.5 billion yuan will be paid in cash at the transaction price of 4.4 billion yuan, which should be remitted within 15 trading days after the completion of 49% equity transfer of Hanhui pharmaceutical.

By the end of the first quarter of 2020, Haizheng pharmaceutical's book monetary capital was 2.333 billion yuan, short-term loans and non current liabilities due within one year totaled 7.598 billion yuan.

In response to the company's share holding plan of 1.5 billion yuan, the company plans to raise more than 1.5 billion yuan in cash for the company's share-holding. But the purchase of assets is not based on raising matching funds in place. "

"Among them, Jiaojiang state-owned assets company plans to subscribe for no more than 700 million yuan of shares, and no more than 800 million yuan of convertible corporate bonds under the employee stock ownership plan. If the financing of the company is not completed in time, or the financing of the company's own securities is not completed in time, or the company's own funds can not be used in time after the company's financing work is completed on August 8, the company's own financing personnel will be used to pay for the debt.

At present, a series of measures to promote and optimize the management of the pharmaceutical industry are being put forward.

Since the beginning of this year, Haizheng pharmaceutical has disposed of some non core assets such as the real estate in Hangzhou and Jiaojiang, Taizhou, and the equity of some participating companies.

In the first half of 2020, Haizheng pharmaceutical is expected to achieve a net profit of 205 million yuan to 255 million yuan, a year-on-year increase of 290% - 385%. Among them, the non recurrent profits such as asset disposal and government subsidies are as high as 75-90 million yuan.

On August 6, some industry insiders pointed out to the 21st century capital research institute that "this transaction is conducive to Haizheng's business transformation and industrial upgrading from API to high-end preparations, from imitation to independent innovation, and further promote the company's strategic transformation. In addition, after the completion of the transaction, Haizheng pharmaceutical will form an equity structure of state-owned holding, strategic equity participation and employee shareholding, which is conducive to improving the level of corporate governance.

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