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Yangtze Business Daily News● Changjiang Business Daily reporter Wang Jing

Chen Shiliang was bold and careful in taking on the task of borrowing a ship to go out to sea. He built a chemical fiber empire worth hundreds of billions. Now, his daughter Chen Lei has taken over, and the giant ship has embarked on a new journey.

On July 12, Tongkun Group (601233.SH), a leading domestic private polyester company, released its performance forecast, saying that in the first half of 2024, the company expects to achieve a net profit of 1 billion to 1.15 billion yuan, a year-on-year increase of 849.4% to 991.81%; non-net profit of 850 million to 1 billion yuan, a year-on-year increase of 2186.62% to 2554.85%.

Tongkun Group was founded by Chen Shiliang. In 1991, Chen Shiliang was appointed to take over the insolvent Tongxiang Chemical Fiber Factory, and started the market transformation from polypropylene to polyester, and completed the expansion through mergers and acquisitions and low-cost advantages. Currently, Tongkun Group's polyester filament production ranks first in the world, with total assets exceeding 110 billion yuan.

In June 2023, Chen Shiliang's daughter Chen Lei took over her father's business and became chairman and president. In July, a major cooperation project worth more than 60 billion yuan in Indonesia was finalized, showing its ambition.

Tongkun shares are under great pressure. As of the end of the first quarter of this year, the company's long-term and short-term debts totaled about 58.6 billion yuan, and its debt-to-asset ratio reached 67.56%.

Under the leadership of Chen Lei, where will Tongkun Group, a multi-billion dollar giant, head?

Both father and daughter were ordered to take charge in times of crisis

Chen Shiliang's business legend began when he took over a dying chemical fiber factory.

Chen Shiliang was born in an ordinary family in Tongxiang, Zhejiang. After leaving school, he entered a chemical fiber factory and started as a technician. He worked with the masters to overcome technical difficulties. The factory developed rapidly and Chen Shiliang gradually became the deputy director of Fengming Chemical Fiber Factory.

At that time, Tongxiang Chemical Fiber Factory had major problems with its internal management and was once insolvent. In times of crisis, the local government found Chen Shiliang and hoped that he would take on the responsibility of helping Tongxiang Chemical Fiber Factory. In 1991, the 28-year-old Chen Shiliang was ordered to return to Tongxiang Chemical Fiber Factory and serve as the factory director.

Chen Shiliang did not disappoint expectations. In the first month after he was transferred to the position of factory director, the output of Tongxiang Chemical Fiber Factory increased by nearly 40%, making a profit of 50,000 yuan.

After escaping the existential crisis, product structure adjustment was imminent. In order to raise funds for technical transformation, Chen Shiliang "borrowed a boat to go to sea" and obtained the support and trust of Jiangsu Kunshan Susanshan Group and Jiangsu Changshu Chemical Fiber Equipment Factory, and introduced three polyester spinning lines, and the company began to get on the right track.

In 1995, Tongxiang Chemical Fiber Factory was restructured and renamed "Tongkun". Chen Shiliang also began to expand at low cost through mergers and acquisitions. During the financial crisis in 2008, Chen Shiliang made bold investments and expanded against the trend. He led Tongkun to decisively invest 1.2 billion yuan to fully launch Hengtong Company's world's largest single-line melt-spinning project with an annual output of 400,000 tons. This project enabled Tongkun to surpass its Indian competitors in production capacity and become the world's largest polyester filament producer. In 2011, Tongkun entered the A-share market.

As an industry leader, Tongkun Group has maintained good performance for many years. However, in the past three years, affected by crude oil prices, the company's raw material costs have risen sharply. At the same time, market demand has shrunk temporarily, industry competition has become more intense, and the company's production, sales and price spreads have been severely tested.

Under such circumstances, Chen Shiliang's daughter Chen Lei came on the scene.

In fact, as a "second-generation entrepreneur", Chen Lei has been trained by Chen Shiliang. Ever since she can remember, her father has always been a busy figure. "When I was a child, my father was really busy. When there was technical reform in the workshop, he would often stay up until three or four in the morning, sleep for only two or three hours, eat a quick breakfast, and go out to work again."

After graduating from the UK, Chen Lei decided to take over the family business and started from the grassroots. She started as a warehouse manager and later worked in the workshop. She also worked in finance and joined the Hong Kong branch. Her father Chen Shiliang put her in every link of the company and let her clearly understand the entire process of the group's operation. It was not until 2020 that Chen Lei returned to the Tongxiang headquarters and began to prepare to take over the group.

In June 2023, 36-year-old Chen Lei officially took over as Chairman and President of Tongkun Group.

Financial pressure: debt-to-asset ratio reaches 67.56%

However, inheriting the family business is far from being that simple. Chen Lei is faced with a huge and complex ship worth hundreds of billions of dollars. Every decision she makes will affect the entire system, which means she must act prudently.

Affected by crude oil prices, Tongkun shares have had a hard time, and their operations have taken a sharp turn for the worse in the past two years.

In 2021, Tongkun shares are still making great strides, with a full-year net profit of 7.3 billion yuan, an increase of about 1.6 times. In 2022, its operating income was 61.993 billion yuan, a year-on-year increase of 4.79%, and its net profit was 130 million yuan, a year-on-year decrease of 98.26%, and its non-net profit was 8.5118 million yuan, a year-on-year decrease of 99.89%.

The annual non-GAAP net profit was less than 9 million yuan, which is the lowest point of Tongkun Group so far.

In 2023, Tongkun Group's performance improved, with operating income of 82.64 billion yuan, a year-on-year increase of 33.3%, and net profit and non-net profit of 797 million yuan and 455 million yuan respectively; performance continued to grow in the first half of 2024, but has not yet recovered to the level of 2021.

Under such circumstances, Tongkun Group continued to expand aggressively.

In June 2021, Tongkun Group and Fuhua Gulei jointly signed the "Investment Agreement for an Annual Production of 2 Million Tons of Polyester Fiber Project" with the Management Committee of Fujian Gulei Economic Development Zone, intending to invest in a new project with an annual output of 2 million tons of polyester fiber, 500 texturizing machines, and 2,000 looms. The total investment of the project is estimated to be 15 billion yuan.

Half a year ago, Tongkun Group disclosed that it planned to invest in a new project in Shuyang, Jiangsu with an annual output of 2.4 million tons of filament (short fiber), 500 texturing machines, 10,000 looms, supporting dyeing and finishing, and a public thermal energy center, with a total investment of 15 billion yuan.

One month after Chen Lei took over, in July 2023, Tongkun Group made an astonishing investment - it announced that it would cooperate with A-share company Xinfengming to invest in the construction of the North-Canada refining and chemical integration project of Taikun Petrochemical (Indonesia) Co., Ltd. in Indonesia, with a total investment of US$8.624 billion (equivalent to RMB 62.2 billion). According to the shareholding ratio of the operating entity, Tongkun Group needs to invest about RMB 28.5 billion.

However, at present, Tongkun shares are under great financial pressure. As of the end of the first quarter of this year, the company's book cash was 14.78 billion yuan (including restricted funds) and trading financial assets were 584 million yuan. Correspondingly, short-term loans were 30.29 billion yuan, non-current liabilities due within one year were 7.15 billion yuan, and long-term loans were 21.12 billion yuan, with a total of long-term and short-term debts of about 58.6 billion yuan. The company's financial expenses in the first quarter reached 273 million yuan.

In recent years, the company's asset-liability ratio has been rising. At the end of 2020, Tongkun's asset-liability ratio was 45.13%, and by the end of the first quarter of this year it had reached 67.56%.

Perhaps due to financial pressure or market changes, in order to reduce investment and operational risks, on May 24 this year, Tongkun Group announced the adjustment of the equity structure, investment amount and project scale of the Taikun Petrochemical Indonesia North Canada Refining and Chemical Integration Project.

After the adjustment, Tongkun shares' penetration shareholding ratio increased to 80%, while the refining scale was reduced to 10 million tons, and the total investment of the project was reduced to US$5.95 billion. Based on the shareholding ratio, Tongkun shares need to bear the capital part of US$1.43 billion (about RMB 10.4 billion).