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On July 27, the 2024 semi-annual report of Renmin Pharmaceutical (600079) was released. The company's net profit in the first half of the year fell by 16.07%, continuing the trend of declining net profit in the semi-annual report of the previous year. At the same time as disclosing the semi-annual report, Renmin Pharmaceutical disclosed a plan for the chairman to reduce holdings. The company's chairman, Li Jie, plans to reduce holdings by no more than 12 million shares of the company. The decline in performance and the reduction of holdings by the chairman will also put Renmin Pharmaceutical's stock price on July 29 to the test. It is worth mentioning that while disclosing the above announcement, Renmin Pharmaceutical also disclosed a number of related transactions such as the purchase of property assets and the acquisition of subsidiaries, and all of the above transactions occurred in 2022 and before.

Chairman's share reduction expectations

On July 27, Renmin Pharmaceutical, which is mainly engaged in the research and development, production and sales of drugs, disclosed its 2024 semi-annual report showing that during the reporting period, the company's attributable net profit declined.

Financial data shows that Renmin Pharmaceutical achieved operating income of approximately RMB 12.861 billion in the first half of the year, an increase of 3.86% year-on-year; the corresponding attributable net profit was approximately RMB 1.111 billion, a decrease of 16.07% year-on-year. Renmin Pharmaceutical said that this was mainly due to the fact that the non-recurring gains and losses realized by the company from the sale of assets and debt restructuring in the same period last year were higher than those in the current reporting period.

Looking at the long term, since turning a profit in 2019, Renmin Pharmaceutical's net profit has grown for four consecutive years. This situation was broken in 2023, when Renmin Pharmaceutical's net profit fell 14.07% year-on-year.

In terms of interim reports, in recent years, Renmin Pharmaceutical has also seen a decline in net profit in the 2023 interim report, with a net profit of 1.324 billion yuan in the first half of 2023, a year-on-year decrease of 11.92%. Compared with the same period last year, the decline in Renmin Pharmaceutical's net profit in the first half of the year has increased.

While handing in a mid-year report with declining performance, Renmin Pharmaceutical also disclosed a plan for the chairman to reduce holdings on July 27. The announcement shows that Li Jie, chairman of Renmin Pharmaceutical, has a tax obligation due to the issuance of shares to purchase assets in 2020, and has a need for funds to pay personal income tax. He plans to reduce his holdings by no more than 12 million shares through the Shanghai Stock Exchange securities trading system by centralized bidding or block trading within 3 months after 15 trading days from the date of disclosure of this announcement, accounting for 0.74% of the company's total share capital and 12.31% of his shareholding ratio.

If calculated based on the latest closing price of Renmin Pharmaceutical of 18.7 yuan per share, Li Jie can cash out a maximum of approximately 224 million yuan from this share reduction.

As of the date of the announcement, Li Jie holds 97.4801 million shares of Renfu Pharmaceutical, accounting for 5.97% of the company's total share capital, all of which are unrestricted tradable shares. In 2023, Li Jie's annual salary at Renfu Pharmaceutical is 5.673 million yuan.

Independent economist Wang Chikun said that the reduction of holdings by major shareholders and senior executives of listed companies may have a negative impact on the company's stock price to a certain extent.

Regarding company-related issues, a Beijing Business Daily reporter sent an interview letter to Renmin Pharmaceutical, but as of press time, no response was received from the company.

New disclosure of multiple related-party transactions

It is worth noting that on July 27, Renmin Pharmaceutical also disclosed a number of related-party transactions, all of which occurred in the past.

For example, an announcement from Renmin Pharmaceutical showed that the company's subsidiaries Renmin Co., Ltd., Innovative Drug R&D Center, Tianrun Health, and Yichang Renmin purchased property assets from Wuhan Kemeilide Biotechnology Co., Ltd. (hereinafter referred to as "Kemeilide") in March 2022, with a total contract amount of 1.645 billion yuan.

This transaction, which took place in March 2022, was not disclosed at the time. Renmin Pharmaceutical said that according to the notification letter recently received from its controlling shareholder, Wuhan Contemporary Technology Industry Group Co., Ltd. (hereinafter referred to as "Contemporary Technology"), Contemporary Technology's subsidiaries can have a significant impact on Kemeilide's shareholders due to business relationships. Therefore, Kemeilide is a related party of the company, and this transaction constitutes a related transaction.

Lou Xiaoyun, a lawyer at Shanghai Gubei Law Firm, said that according to the "Shanghai Stock Exchange Listed Company Self-Discipline Supervision Guide No. 5 - Transactions and Related Transactions", the purchase of assets by listed companies from related parties must be submitted to the shareholders' meeting for review. Humanwell Pharmaceutical said that the transaction was reviewed and approved at the 68th meeting of the company's 10th Board of Directors on July 26, and still needs to be approved by the shareholders' meeting.

It is worth mentioning that the counterparty of the above transaction, Kemeilide, was once a subsidiary of Renmin Pharmaceutical. On July 27, Renmin Pharmaceutical also announced that the company and its subsidiaries transferred a total of 100% of their equity in Kemeilide to Wuhan Dangjing Commercial Management Co., Ltd. (hereinafter referred to as "Wuhan Dangjing") in November 2018, with a total transaction amount of 189 million yuan. After the transaction is completed, Kemeilide will no longer be included in the company's consolidated financial statements. The company has recently learned that the subsidiaries of Contemporary Technology can have a significant impact on Wuhan Dangjing due to business relations. Therefore, Wuhan Dangjing is an affiliated person of the company, and this transaction constitutes an affiliated transaction.

Related to the company's controlling shareholder

In addition, other newly disclosed related-party transactions are similar. According to the announcement of Renmin Pharmaceutical, the company acquired 40% of the equity of Hubei Gedian Renmin Pharmaceutical Excipients Co., Ltd. from Wuhan Yaoxing Pharmaceutical Co., Ltd. (hereinafter referred to as "Yaoxing Pharmaceutical") in March 2022, and the equity transfer amount was 100 million yuan. The notice of Contemporary Technology shows that the subsidiaries of Contemporary Technology can have a significant influence on Yaoxing Pharmaceutical due to business relations, and also recognize this transaction as a related-party transaction.

Another transaction took place seven years ago. According to an announcement by Renmin Pharmaceutical, the company's wholly-owned subsidiary signed a "Construction Engineering Contract" with Wuhan Xinhong Construction Engineering Co., Ltd. (hereinafter referred to as "Xinhong Construction") in November 2016 for the oral preparation cGMP export production base project. The project has passed the acceptance, and the third-party review of the project cost is 89.2241 million yuan. In addition, in 2018 and 2021, Renmin Pharmaceutical's subsidiaries signed relevant engineering construction contracts with Xinhong Construction respectively. Due to business relations, Contemporary Technology's subsidiaries can have a significant impact on Xinhong Construction, and the above transactions are identified as related transactions.

The multiple related transactions disclosed this time are all related to the company's controlling shareholder. It is understood that Contemporary Technology, the controlling shareholder of Renfu Pharmaceutical, was once the core holding platform of the "Contemporary Group", the largest private capital group in Hubei Province. It once grew into a capital group spanning the fields of medicine, tourism, and finance. However, as the capital chain tightened, the capital map of the "Contemporary Group" gradually collapsed.

In May this year, Renmin Pharmaceuticals announced that its controlling shareholder Contemporary Technology was warned by the Shanghai Stock Exchange for illegal share reduction. In addition, Renmin Pharmaceuticals also announced that as of May 8, all 387 million shares held by the controlling shareholder Contemporary Technology in the company were judicially marked and frozen, accounting for 100% of the total number of shares held by it and 23.69% of the company's total share capital.

Beijing Business Daily reporter Ding Ning