Brother Technology's strategy swings 890 million yuan, the project is terminated, and it is in a diversified predicament, with a loss of 175 million yuan and a debt of more than 1.6 billion

Yangtze River Business Daily News ● Yangtze River Business Daily reporter Shen Yourong

The fundraising project three years ago should have been completed and put into production, but Brother Technology (002562. SZ) announcement: terminated!

On the evening of May 13, Brother Technology announced that it would terminate the construction project with an annual output of 30,000 tons of natural flavors. Three years ago, the company raised funds to promote the construction of the project.

Why was the key project terminated? According to the company, the price of "resophorone", the core raw material of the project, has risen, and based on the current development plan, the company will focus on the existing products and markets of the hydroquinone industry chain in the short term.

Brother Technology has implemented a strategy of industrial diversification, including vitamins, pharmaceuticals, chromium salts, and leather chemicals in addition to flavors and fragrances. As a result of diversification, the company's operating results fluctuated significantly.

In 2022, Brother achieved a net profit attributable to shareholders of the parent company (hereinafter referred to as "net profit") of CNY 306 million, a year-on-year increase of more than 9 times. In 2023, the net profit will be -175 million yuan, and the profit will turn into a loss within a year.

At the performance briefing on May 10 this year, some investors bombarded, "The company keeps investing, from vitamins, to flavors, and contrast agents, none of them have achieved good returns, and they are still investing in new projects, has the company's leadership reflected?" ”

A reporter from Changjiang Business Daily found that despite frequent fundraising, Brother Technology still has financial pressure. As of 2023, the company's debt exceeds 1.6 billion yuan.

Terminate the project and focus on hydroquinone in the short term

Brother Technology's industrial focus has been quietly adjusted.

According to the latest announcement, Brother Technology has terminated the construction project with an annual output of 30,000 tons of natural flavors.

This project was a key project of the company. In April 2020, Brother Technology disclosed a fixed increase plan to raise 1.2 billion yuan, mainly for a construction project with an annual output of 30,000 tons of natural spices, and the project plans to invest 890 million yuan in raising funds. The remaining 80 million yuan will be used for the construction project of Brother Science and Technology Research Institute, and 232 million yuan will be used to repay bank loans. The construction period of the project is 3 years, and the annual sales revenue will be 1.531 billion yuan, the net profit will be 206 million yuan, and the total investment return rate (after tax) will be 23.2% in the first year after all the production is completed. The payback period (excluding the construction period) is 5.4 years.

In 2021, Brother Technology completed the implementation of the private placement, and the actual fundraising was 543 million yuan, which was lower than expected. Therefore, the company decided to use all the funds for the construction of the above-mentioned spice project.

However, in April 2022, Brother Technology announced that it would adjust the use of the above-mentioned funds and invest them in the "second phase of the construction project with an annual output of 20,000 tons of hydroquinone and 31,100 tons of hydroquinone derivatives". The reason for the change in the use of the funds raised is that the market price of the core raw material "resin turpentine" to be used in the natural flavor construction project has shown a continuous upward trend, which is expected to significantly affect the economic benefits of the project. At that time, the company announced that the investment already invested in the original project could still be used for the construction of subsequent new projects.

After two years of suspension of the above project, Brother Technology has announced that it will terminate the project completely. The company said that up to now, with the completion and operation of the second phase of the hydroquinone project, the company's spice plate production capacity has been relatively abundant.

According to the explanation, Brother Technology has adjusted its industrial plan and will focus on the existing products and markets of the hydroquinone industry chain in the short term.

In this regard, the market questioned that the major fundraising and investment projects would be terminated when they were terminated, and the company did not conduct sufficient demonstration before planning the project? Paying attention to the existing products and markets of the hydroquinone industry chain in the short term, does the company not have a long-term plan?

In fact, Brother Technology's business focus is wavering.

Brother Technology said in its annual report that the company has been engaged in the production and sales of vitamins and chromium salt-related products for more than 30 years.

However, from an industrial point of view, the company has not made the vitamin and chromium salt business bigger and stronger.

Profitability volatility continues to be in doubt

The diversification and vacillation of the industry doomed Brother Technology's profitability to be unstable.

Brother Technology was listed on the Shenzhen Stock Exchange in March 2011, and the following year, its operating income increased to 775 million yuan, an increase of 24.86%. The net profit was -57 million yuan, however, the net profit after deducting non-recurring gains and losses (hereinafter referred to as "deducting non-net profit") did not lose 21 million yuan, a year-on-year decrease of 57.40%.

From 2013 to 2017, Brother Technology's business performance grew steadily. After five consecutive years of growth, the operating income increased from 784 million yuan in 2013 to 1.565 billion yuan in 2017, and the net profit increased from 18 million yuan in 2013 to 403 million yuan in 2017, of which the net profit was the best level so far.

In 2018, the operating performance entered a period of volatility. In 2018 and 2019, the company's operating income was 1.415 billion yuan and 1.258 billion yuan respectively, a year-on-year decrease of 9.56% and 11.12% respectively; The net profit was 22 million yuan and 44 million yuan, with a year-on-year change of -94.59% and 100.88%.

From 2020 to 2022, the company's operating income will be 1.919 billion yuan, 2.733 billion yuan, and 3.411 billion yuan respectively, a year-on-year increase of 52.56%, 42.43%, and 24.82%, with rapid growth for three consecutive years; The net profit was 28 million yuan, 28 million yuan and 306 million yuan, with year-on-year changes of -36.04%, 1.08% and 978.35%. The trend of non-net profit and net profit is basically the same.

The above data shows that in 2020, the trend of net profit and operating income diverged, and the net profit in 2022 showed a sharp rise, but it still did not recover to the level of 2017.

The company explained that in 2022, the prices of some of the company's vitamin products and chromium salt products will rise in different ranges, and the gross profit margin of the products will increase; "Annual output of 20,000 tons of hydroquinone, 31,100 tons of hydroquinone derivatives construction project - phase I project" production capacity release and operation optimization, product sales have achieved significant growth, and project benefits have been gradually released.

However, the good times were short-lived. In 2023, the company will usher in a double decline in revenue and net profit. its operating income was 2.821 billion yuan, a year-on-year decrease of 17.30%; net profit was -175 million yuan, down 157.43% year-on-year; The net profit after deduction was -233 million yuan, a year-on-year decrease of 179.84%.

2023 is the second loss-making year for Brother Technology since its listing. The company explained that due to market changes and industry cyclicality, the sales price of the company's vitamins, flavors and fragrances, chromium salts and other related products declined, and the gross profit margin of products declined.

Net profit soared in 2022 and plummeted in 2023, making it hard to believe Brother Technology's sustained profitability.

In the first quarter of this year, the company's operating income was 820 million yuan, a year-on-year increase of 21.31%, but the net profit was a loss of 25 million yuan, continuing the loss trend since 2023.

With five major businesses, including vitamins, flavors and fragrances, chromium salts, and leather chemicals, why can't Brother Technology's diversified industries smooth out the risk of cyclical fluctuations?

In the eyes of market participants, Brother Technology's diversified industries are not highly competitive, and its industrial diversification is showing signs of difficulties.