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(Original title: Acquiring a loss-making blood products company at a premium of nearly 1.2 billion, Boya Bio's goodwill risk increases)

Consumer Daily News (Reporter Lu Yue)Recently, China ResourcesBoya BioPharmaceutical Group Co., Ltd. (hereinafter referred to as "Boya Bio") announced that the company plans to spend 1.82 billion yuan to acquire 100% of Green Cross Hong Kong Holdings Co., Ltd. (hereinafter referred to as "Green Cross Hong Kong")EquityIt is worth noting that the acquisition target has been in a loss-making state in recent years, and there is a certain premium in this acquisition. The transaction price is approximately RMB 1.175 billion higher than the net assets of the target company.

Boya Bio has not achieved effective revenue growth for many consecutive years, and its net profit level has also declined sharply in 2023. Financial data shows that from 2021 to 2023, its operating income will be approximately 2.651 billion yuan, 2.759 billion yuan, and 2.652 billion yuan respectively; its net profit will be approximately 345 million yuan, 432 million yuan, and 237 million yuan respectively.

It is worth noting that an important reason for the substantial decrease in Boya Bio's net profit in 2023 is that it incurred nearly 300 million yuan in goodwill impairment. The premium acquisition of Green Cross Hong Kong may further increase the company's goodwill impairment risk.

On July 17, Boya Bio released the "Announcement on the Acquisition of 100% Equity of Green Cross Hong Kong Holdings Co., Ltd." to continue to increase its blood products business. The announcement showed that the company plans to use its own funds of RMB 1.82 billion to acquire 100% equity of Green Cross Hong Kong, thereby indirectly acquiring the domestic blood products entity Green Cross (China) Biological Products Co., Ltd. (hereinafter referred to as "Green Cross China").

The transaction targets GC, South Korea's third-ranked biopharmaceutical company, whose main businesses include blood products, vaccines, genetic engineering, etc., and it holds a 77.35% stake in Green Cross Hong Kong.

It is reported that Green Cross China was established in 1995. It is a blood products company established by GC in China through Green Cross Hong Kong Holdings Co., Ltd., mainly engaged in the research and development, production and sales of blood products. There are currently 4 plasma stations, with a plasma collection volume of 104 tons in 2023. At the same time, it imports albumin, recombinant factor VIII and medical beauty products for sale in China through Anhui Greenke (sales platform company).

Boya Bio disclosed in the announcement that the country has not approved new production enterprises in the blood products industry 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, and the industry barriers are relatively high. Production enterprise license resources are very scarce. Green Cross China has the sales rights of human factor VIII and recombinant factor VIII. After the completion of this transaction, the company will add 4 operating single plasma collection stations,

However, after Boya Bio announced the acquisition of Green Cross Hong Kong, its stock price fell in the secondary market. On July 18 and 19, the company's stock price fell by 4.85% and 1.47% respectively. This situation may be related to Green Cross Hong Kong's losses in recent years and premium acquisitions.

Financial data shows that Green Cross Hong Kong's operating income fell sharply in 2022, down about 42.34% from the same period last year, and the company's net profit also turned negative that year. From 2022 to the end of September 2023, its operating income was approximately 233 million yuan and 239 million yuan respectively; the net profit attributable to the parent company was -23.2709 million yuan and -12.1204 million yuan respectively. Under the premise that the company is losing money, this acquisition did not set up a performance betting agreement.

Regarding the target company's losses, Boya Bio stated that the main reason for its performance losses was the decrease in the amount of imported albumin and recombinant human coagulation factor VIII during the period, which led to a decrease in revenue compared to 2021, as well as the impact of payment of technical service fees for GC and exchange losses on related party loans.

Boya Bio's acquisition also involves a premium. The announcement shows that the book value of the parent company's equity in the consolidated financial statements included in the valuation of Green Cross Hong Kong is approximately RMB 645 million, and the valuation of all shareholders' equity is RMB 1.677 billion. The acquisition price is RMB 1.82 billion, which is approximately RMB 1.175 billion higher than the target company's net assets and approximately RMB 143 million higher than the valuation of all shareholders' equity.

In addition, in this transaction, Boya Bio will acquire Green Cross Hong Kong in cash. As of the end of the first quarter of this year, the company's cash and cash equivalents were approximately 1.86 billion yuan, almost equivalent to the acquisition price.

Public information shows that Boya Bio was founded in 1993 and is the blood products platform of China Resources' healthcare sector. It is a comprehensive pharmaceutical industry group with blood products as its main business, integrating biochemical drugs, chemical drugs, raw materials, etc. It currently has 16 single-collection plasma stations, including 14 in-operation plasma stations. The raw plasma collection volume in 2023 is approximately 467.3 tons.

In recent years, due to the impact of the centralized procurement policy, the net profit of the company's diabetes business and biochemical drug business has continued to decline. In 2022, the net profit of the above two businesses decreased by 15.41% and 23.76% respectively. In the second half of 2023, Boya Bio will gradually shift its business focus to the blood products business. The above acquisition is a major move to increase its blood products business.

Boya Bio's operating performance is also unstable, with net profit fluctuating significantly. Financial data show that from 2021 to 2023, the company's operating income will be approximately RMB 2.651 billion, RMB 2.759 billion and RMB 2.652 billion, respectively, up 5.47%, 4.08% and -3.87% year-on-year; net profit attributable to the parent company will be approximately RMB 345 million, RMB 432 million and RMB 237 million, up 32.48%, 25.45% and -45.06% year-on-year.

In the first quarter of this year, Boya Bio's performance further declined. As of the end of the first quarter, its operating income was approximately 448 million yuan, a year-on-year decrease of 44.36%; its net profit attributable to shareholders was approximately 152 million yuan, a year-on-year decrease of 10.74%.

Boya Bio said in its annual report that its net profit fell sharply in 2023, mainly due to the provision for impairment of goodwill formed by the acquisition of Nanjing Xinbai Pharmaceutical Co., Ltd. (hereinafter referred to as "Xinbai Pharmaceutical"). It is reported that in 2015, Boya Bio acquired 100% of the equity of Xinbai Pharmaceutical, forming 371 million yuan of goodwill. In 2023, the company's asset impairment provision was about 330 million yuan, of which 298 million yuan was provisioned for goodwill impairment of Xinbai Pharmaceutical.

In addition, the company also set aside fixed asset impairment provisions of approximately RMB 13.79 million and RMB 12.70 million for Jiangxi Boya Xinhe Pharmaceutical Co., Ltd. and the sitafloxacin project.

Boya Bio also disclosed the risk of goodwill impairment, saying, "After the company took control of the merger with Xinbai Pharmaceuticals, a certain amount of goodwill was formed in the consolidated balance sheet of the listed company. According to the provisions of the Enterprise Accounting Standards, goodwill is not amortized, but impairment testing is required at the end of each year. If the operating conditions of Xinbai Pharmaceuticals deteriorate in the future, there will be a risk of goodwill impairment, which will have an adverse impact on the current profit and loss of China Resources Boya Bio."

It is worth noting that the acquisition announcement shows that the assessed value-added of Green Cross Hong Kong is RMB 1.032 billion, with an appreciation rate of 159.97%. After Boya Bio's acquisition of Green Cross Hong Kong at a premium, its book goodwill will increase again, thereby increasing its goodwill risk again.

The reporter sent an interview outline to Boya Bio in order to understand the above-mentioned acquisition and the decline in performance. As of press time, no reply has been received.