Thailand's richest man dreams of breaking A-shares

Original debut | Golden Horn Finance

Author | Zelda

The IPO of feed and pig giant CP Shares cooled.

On October 8, the official website of the Shanghai Stock Exchange announced that it decided to terminate the review of the initial public offering of CP Investment Co., Ltd. (hereinafter referred to as "CP Shares") and its listing on the main board of the Shanghai Stock Market due to the submission of withdrawal application documents by CP and its sponsor.

The above announcement also means that this much-watched tens of billions of IPOs have temporarily come to an end.

Behind the shares is Thailand's CP Group, founded by the Xie family, Thailand's richest family.

CP is the sole operator of CP Group's feed, pig breeding and slaughtering business in Chinese mainland. In 2022, CP ranked third in China in terms of feed production scale, and fourth in pig slaughter scale.

However, before the termination of this IPO, the performance of CP shares, accounts receivable, related party transactions, etc. were all focused on by the Shanghai Stock Exchange.

Interviewed for "monopoly",

Behind it is the richest family in Thailand

CP is one of the largest feed producers and pig breeding enterprises in China. On March 2 this year, the company submitted an initial public offering of shares and a prospectus (declaration draft) for listing on the main board to the Shanghai Stock Exchange, planning to publicly issue no more than 567 million shares, raise 15 billion yuan, and build more than 10 projects such as Guangdong Zhanjiang pig industry chain project and Hubei Xianning pig industry chain project.

The declaration materials show that CP Animal Husbandry Investment holds 65% of the equity of CP shares and is the controlling shareholder of CP Shares; Thailand's CP Group indirectly holds 100% of the equity of CP Livestock Investment through CPG Overseas and other multi-layer structures, and is an indirect shareholder of CP Shares.

At the same time, the four brother families (Xie family) including Xie Zhengmin, Xie Damin, Xie Zhongmin and Xie Guomin indirectly hold CP shares through Thailand CP Group.

CP Group is a diversified multinational group company engaged in agriculture, animal husbandry and food, wholesale and retail, telecommunications, finance, real estate, pharmaceuticals and mechanical processing industries, with business in 21 countries and regions around the world. As one of the world's largest agricultural and animal husbandry enterprise groups, CP Group is the first foreign enterprise to enter the Chinese mainland after the reform and opening up.

In 1979, CP Group invested 15 million US dollars in Shenzhen to build the largest modern feed production enterprise with an annual output of 80,000 tons in China at that time - CP Kangdi Co., Ltd., becoming the first wholly foreign-owned feed enterprise in Chinese mainland.

Since then, CP Group has successively set up agricultural and animal husbandry enterprises such as feed production, livestock breeding, agriculture, animal husbandry and food processing in various provinces and cities in Chinese mainland.

In March 1996, CP was established.

In the development process of more than 20 years, CP Co., Ltd. has gradually expanded and integrated the feed, pig breeding and slaughtering business of CP Group in Chinese mainland through business development, business restructuring, mergers and acquisitions, etc., and finally became the sole operating entity of CP Group's feed, pig breeding and slaughtering business in Chinese mainland.

However, shortly before the withdrawal of the IPO, CP shares were interviewed by regulators for "monopoly".

On July 31 this year, the State Administration for Market Regulation interviewed four pig breeding enterprises, including CP Shares, in accordance with the relevant provisions of the Anti-Monopoly Law and the Provisions on the Prohibition of Monopoly Agreements.

According to the announcement of the State Administration for Market Regulation, on June 20, 2023, four enterprises, Makihara, Wen's, Twins and CP Tai, as the initiators, signed the Convention on Non-Digging of Mutual People, advocating not to poach people and not to dismantle Taiwan, which violates the spirit of the Anti-Monopoly Law and is not conducive to building a unified national market. The meeting required that the four enterprises attach great importance to the problems existing in the Convention on Non-Exploitation of Mutual Personnel, effectively enhance their sense of responsibility, and adhere to operating in accordance with the law.

Performance deteriorated

According to the prospectus, when it was established in 1996, the main business of CP Co., Ltd. was feed processing business. After nearly 30 years of development, the company has gradually developed into a diversified and modern agricultural and animal husbandry enterprise integrating feed R&D, production and sales, pig breeding and slaughtering business.

From 2019 to 2021, the feed output of CP Co., Ltd. was 7.6552 million tons, 9.4986 million tons and 10.4515 million tons, respectively, and the feed output in the first half of 2022 reached 5.0992 million tons. In terms of feed production in 2022, CP ranks third in feed production scale, second only to New Hope and Haida Group.

In terms of pig business, from 2019 to 2021, the pig slaughter volume of CP Co., Ltd. was 4.1878 million, 4.325 million and 6.1455 million respectively, and the pig output in the first half of 2022 reached 4.2663 million. In terms of the number of pigs slaughtered in 2022, the scale of pig slaughter of CP shares ranked fourth, second only to Makihara shares, Wenshi shares and New Hope.

However, affected by the adjustment of the pig cycle, the performance of CP shares, as an industry giant, is inevitably affected.

CP shares latest disclosed in the application materials to the first half of 2022 results.

According to the data, from 2019 to 2021, the company achieved revenue of 31.88 billion yuan, 45.69 billion yuan and 46.46 billion yuan respectively; The net profit attributable to the parent was 2.01 billion yuan, 7.57 billion yuan and 500 million yuan. In 2021, the net profit attributable to the parent has fallen by more than 90% year-on-year.

After stepping into 2022, the situation has further deteriorated. In the first half of last year, the revenue of CP shares fell by 8.9% year-on-year to 21.81 billion yuan, and the net profit attributable to the parent turned from profit to loss, falling nearly 350% year-on-year to a loss of 2.39 billion yuan.

The first and most intuitive reason for the deterioration of performance is the collapse of the overall gross margin. From 2019 to 2021, the gross profit margin of CP shares was 20.14%, 26.29% and 12.35%, respectively, and on the basis of the year-on-year plunge in 2021, the company's gross profit margin further fell to 2% in the first half of 2022.

Among them, the gross profit margin of "pig breeding and slaughtering business" fell significantly. From 2019 to 2021, the gross profit margins of this business were 27.14%, 44.44%, and 10.71%, respectively, while in the first half of 2022, the data plummeted to -14.91%.

The gross profit margin of the feed business was relatively stable, 15.3%, 14.27% and 12.9% in 2019-2021, respectively, while it fell to 11.04% in the first half of 2022.

It can be seen that even if the gross profit margin of the feed business has not plummeted like the pig breeding and slaughtering business, it has shown a downward trend year by year on the basis of the original low level.

More importantly, the gross profit margin of this already unoptimistic feed business is still facing the question of "water injection".

According to the data, the price of poultry sold by the company to related parties is significantly higher than the price sold to third parties. Taking 2021 as an example, from the first to the fourth quarter of that year, the unit price of poultry feed including layer hen feed, broiler feed and duck feed sold by CP to related parties was 14.33%, 12.46%, 11.25% and 13.37% higher than that of third parties, respectively.

In fact, if simulated according to the average sales price of the third party, the non-net profit of CP shares in 2021 was -19.5115 million yuan, compared with 162 million yuan in the year shown in the declaration materials.

In this regard, the SSE required CP to explain "quantitative analysis of the performance measured by the simulation of third-party sales prices, whether the company meets the conditions for issuance and listing", and "whether there is a situation in which profits in 2021 can be achieved by adjusting the pricing and sales volume of poultry sales related transactions".

Relying on credit sales, cash flow deteriorated

In addition to the deterioration of performance, another point of concern for CP is its excessive reliance on credit sales.

From 2019 to 2021, the accounts receivable of CP increased significantly from 1.684 billion yuan to 3.923 billion yuan, and the revenue increased from 31.88 billion yuan to 46.46 billion yuan in the same period, which was significantly lower than the growth rate of accounts receivable.

In the first half of 2022, the revenue of CP shares fell by nearly 10% year-on-year, but the accounts receivable still increased by more than 360 million yuan in half a year, an increase of more than 10%.

The significant increase in accounts receivable was accompanied by a deterioration in the ageing structure.

At the end of 2021, the accounts receivable of CP shares with an age of more than one year were only 390 million yuan, accounting for about 11% of all accounts receivable; However, after half a year to the middle of 2022, accounts receivable with more than one year of age reached 840 million yuan, accounting for about 21% of all accounts receivable, and long-aged accounts receivable increased by 116% in half a year.

At the same time, excessive reliance on credit sales has also made the turnover rate of accounts receivable of CP shares significantly lag behind that of peers, and in 2019-2021 and the first half of 2022, the company's accounts receivable turnover rate (including notes receivable) was 18.17, 20.96, 15.25 and 6.17, respectively; During the same period, the median pig breeding sector of A-share Shenwan tertiary industry was 85.82, 157.99, 121.8 and 39.64 respectively.

For reference, while achieving revenue of more than 100 billion yuan, the receivables of pig breeding brother Makihara shares are only maintained at about 200 million yuan, which is obvious compared with CP shares;

Another giant, New Hope, is more similar to CP in terms of business composition, with more than half of its revenue coming from the feed business, but its accounts receivable turnover rate is also significantly higher than that of CP Shares, and its revenue of more than 100 billion yuan is at the same time, and the accounts receivable are below 2 billion yuan.

In addition, with the sharp increase in accounts receivable, the proportion of bad debts in this part has also increased significantly. From 2019 to 2021 and 2022, the overdue amount of CP shares accounted for 18.82%, 32.31%, 54.71% and 58.39% of the book balance, respectively.

It is worth noting that at the end of each period of the above reporting period, the top five accounts receivable were mainly related parties, and the main reason for the low proportion of accounts receivable collection in recent years was also due to the non-collection of some related parties.

With deteriorating performance, excessive reliance on credit sales, and increased bad debts, you can imagine how bad the cash flow situation of CP shares is.

In 2021, the company's net operating cash flow was -486 million yuan, and in the first half of 2022, the net operating cash flow further deteriorated to -1.8 billion yuan. You know, in 2020, the figure was 4.566 billion yuan.

This also makes the debt situation of CP shares worse.

In the middle of 2022, the total liabilities of CP shares reached 32.394 billion yuan, compared with 27.628 billion yuan at the end of 2021, an increase of nearly 5 billion yuan in just half a year. At the end of 2019, that figure was less than $18 billion.

More serious is the structure of liabilities.

Generally speaking, liabilities are not all bad things, such as "contract liabilities" and other "hematopoietic" liabilities, often reflect an enterprise's advantages in the industrial chain; However, if the proportion of "blood transfusion" liabilities such as "short-term borrowings" and "long-term borrowings" is too high, it may reflect problems in business conditions.

At the end of 2021 and the middle of 2022, the total of the main "blood transfusion" liabilities of CP shares, short-term borrowings of CP shares, non-current liabilities due within one year (according to IPO data, this part is mainly transfusion type liabilities), long-term borrowings, lease liabilities, and long-term payables (formed by financial leasing expansion business) has exceeded 20 billion yuan, accounting for more than 70% of all liabilities, 72.82% and 76.75% respectively;

At the end of 2019, the total debt of these "blood transfusion" was only 8.607 billion yuan, accounting for less than half of the total debt, only 48%.

The rapid rise in total liabilities with blood transfusion liabilities means that it is difficult for CP to maintain its operations through independent operation, and can only rely on continuous financing to resist.

Resources:

Futures Daily "Withdrawal of orders! Pig giant A-share IPO terminated, behind the richest family in Thailand! 》