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Yangtze Business Daily News● Yangtze Business Daily reporter Shen Yourong

Boya Bio (300294.SZ), a leading blood products company, made a major move, but was questioned by the market.

Recently, Boya Bio announced that the company plans to spend 1.82 billion yuan to acquire 100% of the shares of Green Cross Hong Kong Holdings Co., Ltd. (hereinafter referred to as "Green Cross Hong Kong"), and thereby indirectly control Green Cross (China) Biological Products Co., Ltd. (hereinafter referred to as "Green Cross (China)"), a blood products company with 4 plasma stations.

Through this acquisition, Boya Bio's purpose is to open up new paths for the company to integrate industry resources, expand new plasma stations, and accelerate the expansion of scale and competitiveness.

However, a reporter from the Yangtze Business Daily found that the target company was in a loss-making state, and the acquisition premium was obvious. The transaction price was 1.82 billion yuan, which was a premium of about 1.175 billion yuan over the target company's net assets of 645 million yuan as of the end of September 2023.

In the secondary market, after the above-mentioned acquisition news was announced, Boya Bio's stock price fell for two consecutive days.

Three years ago, China Resources Pharmaceutical Holdings Co., Ltd. (hereinafter referred to as "China Resources Pharmaceutical Holdings"), a subsidiary of the central enterprise China Resources Group, took over Boya Bio. In the past three years, the company's fundamentals have not changed. Operating income has stagnated for three years. Due to goodwill impairment, in 2023, the net profit attributable to the parent company's shareholders (hereinafter referred to as "net profit") dropped sharply, and in the first quarter of this year, both revenue and net profit fell.

Can Boya Bio achieve its goal by competing for scarce plasma resources through acquisitions?

1.82 billion to acquire a loss-making company

Boya Bio's large-scale acquisition was met with investors "voting with their feet".

On the evening of July 17, Boya Bio announced that the company plans to use its own funds of 1.82 billion yuan to acquire 100% of the equity of Green Cross Hong Kong held by Korean blood products company GC, Synaptic and 46 individual sellers, thereby indirectly acquiring Green Cross Hong Kong's domestic blood products entity - Green Cross (China).

Public information shows that GC is the third largest biopharmaceutical company in South Korea, the first company in South Korea to produce blood products and AIDS testing reagents, the third company in the world to develop a hepatitis B vaccine, and the fourth company in the world to develop recombinant human coagulation factor VIII; the company's business covers blood products, vaccines, genetic engineering, diagnostic reagents, bioengineering construction and other fields. Synaptic is a South Korean private equity fund.

Boya Bio will also join hands with its controlling shareholder, China Resources Pharmaceutical Holdings, to sign a "Strategic Cooperation Framework Agreement" with GC to reach cooperation on Green Cross (China)'s business integration, drug import and export sales, as well as blood products, vaccines, cell and gene therapy and diagnostic businesses. The cooperation period is 10 years.

The equity structure shows that GC holds 77.35% of Green Cross Hong Kong's shares, Synaptic holds 15.33% and another 46 Korean natural persons hold a total of 7.32%.

Green Cross (China) is a blood products company established by GC in mainland China through Green Cross Hong Kong. It was established in 1995 and is located in the Economic and Technological Development Zone of Huainan City, Anhui Province, with a registered capital of 159 million yuan.

According to the announcement, in 2021, 2022 and January-September 2023, the operating income of Green Cross (Hong Kong) was approximately RMB 404 million, RMB 233 million and RMB 239 million, respectively, and the net profit was RMB 22.4182 million, -RMB 23.2709 million and -RMB 12.1204 million, respectively.

The premium for this acquisition is relatively large. As of the end of September 2023, the owner's equity of Green Cross (Hong Kong) is approximately RMB 645 million. Taking September 30, 2023 as the valuation base date, the valuation of all shareholders' equity is approximately RMB 1.677 billion using the income method, with an assessed value-added of approximately RMB 1.032 billion and a value-added rate of 159.97%.

After negotiation between the two parties, the transaction price was determined to be RMB 1.82 billion. If calculated at this price, the owner's equity of Green Cross (Hong Kong) will increase by approximately RMB 1.175 billion, with an appreciation rate of approximately 182.17%.

This means that once the acquisition is completed, goodwill of about 1.175 billion yuan will be generated. No performance commitment has been set for this premium acquisition.

For Boya Bio, 1.82 billion yuan accounts for 24.86% of the company's latest audited net assets. Boya Bio has only 1.86 billion yuan in cash on its account and about 3.7 billion yuan in financial products.

Affected by the above acquisition news, Boya Bio opened sharply lower on July 18, falling more than 8% during the day, and narrowed the decline to 4.85% at the close. On July 19, the company continued to open lower and closed down 1.47%.

It is worth mentioning that on July 18, Boya Bio held a conference call to explain that the reason for Green Cross Hong Kong's losses was that the revenue decreased compared with 2021 due to the reduction in the amount of imported albumin and recombinant human coagulation factor VIII during the period, as well as the payment of technical service fees for GC Group and exchange losses on related-party loans.

First quarter revenue and net profit both fell

The purpose of Boya Bio's external mergers and acquisitions is to enhance the company's scale and competitiveness.

Boya Bio is a comprehensive medical industry group that focuses on blood products and integrates biochemical drugs, chemical drugs, raw materials, etc. Its products include blood products, diabetes and anti-infective chemical drugs, biochemical drugs, etc. Among them, the yield and market share of fibrinogen products are the highest in the country.

Boya Bio entered the A-share market in 2012. By 2018, the company's operating income and net profit reached 2.388 billion yuan and 469 million yuan, respectively. Since 2019, the operating income has almost stagnated. Its operating income from 2019 to 2023 was 2.761 billion yuan, 2.513 billion yuan, 2.651 billion yuan, 2.759 billion yuan, and 2.652 billion yuan, respectively, with year-on-year changes of 15.64%, -8.98%, 5.47%, 4.08%, and -3.87%. During the same period, the company's net profit was 426 million yuan, 260 million yuan, 345 million yuan, 432 million yuan, and 237 million yuan, respectively, with year-on-year changes of -9.17%, -38.97%, 32.48%, and 25.45%.

In the past five years, operating income has stagnated, while net profit has fluctuated significantly.

It is worth mentioning that in 2021, through acquiring shares and participating in private placement, China Resources Pharmaceutical Holdings became the controlling shareholder of Boya Bio with a shareholding ratio of 29.28%.

In 2023, the third year after China Resources Pharmaceutical Holdings took over, Boya Bio's performance changed dramatically, with both revenue and net profit falling. Among them, the net profit fell by 45.06% year-on-year, and the net profit after deducting non-recurring gains and losses (abbreviated as

"Non-GAAP net profit") was 143 million yuan, a year-on-year decrease of 63.51%.

The net profit and non-net profit in 2023 dropped significantly, mainly due to the impairment of goodwill of 298 million yuan.

In 2015, Boya Bio acquired 83.87% of the equity of Xinbai Pharmaceutical for RMB 520 million, and the latter became its wholly-owned subsidiary, generating goodwill of RMB 371 million that year.

In recent years, affected by multiple factors, Xinbai Pharmaceutical's operating performance has continued to decline. In 2022, Xinbai Pharmaceutical's revenue and net profit were 438 million yuan and 30 million yuan respectively, and in 2023, the revenue and net profit were 337 million yuan and 23.9547 million yuan respectively, both of which continued to decline.

After the acquisition of Green Cross (Hong Kong), Boya Bio's goodwill will increase significantly, and the risk of goodwill impairment will become apparent.

Regarding this acquisition, Boya Bio said that in the blood products industry, the country has not approved new production enterprises since May 2001, and has implemented total quantity control on production enterprises. Currently, there are less than 30 blood products production enterprises operating normally in China, and a few enterprises have multiple production licenses. The industry barriers are high, and production enterprise license resources are very scarce. Green Cross China has 6 varieties and 16 specifications, including albumin, intravenous immunoglobulin, and factor VIII. Among them, the recovery rate of factor VIII is far ahead of the industry average, forming synergy and complementarity with the company's existing advantageous resources.

Competition in the plasma products industry is fierce. Through this acquisition, Boya Bio is trying to grab market share, but whether it can achieve expectations remains to be seen.