The first M&A case at the select level recently ushered in a "reversal", and the performance of the acquisition target plummeted by more than 90% after the end of the three-year commitment period. As the acquirer, Jiaxian received an inquiry letter from the Beijing Stock Exchange on May 15.
Source: Photo.com
The subsidiary's performance commitment "stepped on the line" to meet the standard, and the net profit fell by more than 90% after the period
According to the inquiry letter, the Beijing Stock Exchange paid attention to Jiaxian shares (430489. BJ), the first of which is goodwill impairment and performance commitments.
Anhui Shafeng New Materials Co., Ltd. (hereinafter referred to as Shafeng New Materials) was established in July 2014, specializing in the research, production and marketing of stearate products. In November 2020, Jiaxian Co., Ltd. announced the acquisition of 67% of the shares of Shafeng New Materials held by Yang Xiaolong, Sun Guoqing and He Yiping. As the first merger and acquisition case of the selected layer, the total transfer price of this transaction is 90.45 million yuan, which will be paid in three installments.
The first phase of Jiaxian shares will pay 60% of the equity transfer price, that is, 54.27 million yuan, of which 15% of the transfer price is specially used to purchase Jiaxian shares. If Shafeng New Materials achieves the cumulative performance commitments in 2020 and 2021 and the cumulative performance commitments from 2020 to 2022, Jiaxian will pay the second and third equity transfer prices in turn, which are 20% of the target equity transfer price, that is, 18.09 million yuan.
Yang Xiaolong, Sun Guoqing, and He Yiping promised that the net profit of Shafeng New Materials in 2020, 2021, and 2022 will not be less than 13.5 million yuan, 14.85 million yuan, and 16.33 million yuan respectively, or the cumulative performance of the first two assessment years will not be less than 28.35 million yuan, and the cumulative performance of the first three assessment years will not be less than 44.68 million yuan.
According to the "Asset Appraisal Report" issued by Zhongshui Zhiyuan Asset Appraisal Co., Ltd. on October 21, 2020, Shafeng New Materials is expected to achieve net profit of 13.4841 million yuan, 14.7491 million yuan and 16.0603 million yuan in 2020, 2021 and 2022, with a total of 44.2935 million yuan in three years.
As of August 31, 2020, the net book assets of Shafeng New Materials were 39.5033 million yuan, and the transfer price of 90.45 million yuan corresponds to the valuation of 100% equity of Shafeng New Materials of 135 million yuan. Based on this calculation, the premium rate of Jiaxian's acquisition is about 241.74%.
In December 2020, Jiaxian Co., Ltd. included Shafeng New Materials in the scope of consolidated statements and confirmed goodwill of 52.7056 million yuan. In 2020, Shafeng New Materials achieved an operating income of 194.2843 million yuan and a net profit of 19.4995 million yuan, exceeding the performance commitment. Since Jiaxian's 2020 financial report can only consolidate the December data of Shafeng New Materials, the impact of Shafeng New Materials on the company's consolidated statement income in the current period is 21.6259 million yuan, and the impact of net profit is 1.7969 million yuan, accounting for about 14.99% of the company's consolidated statement revenue and 6.40% of net profit.
In 2021, Jiaxian Co., Ltd. will include the annual data of Shafeng New Materials in the consolidated statements, resulting in a significant increase in operating income and net profit. In the current period, Shafeng New Materials achieved operating income of 265.7496 million yuan and net profit of 14.6537 million yuan, accounting for 55.43% of the consolidated revenue and 21.99% of the net profit of listed companies, respectively.
Although there is still a gap between the net profit realized by Shafeng New Materials in 2021 and the promised 14.85 million yuan, after superimposing the performance in 2020, Shafeng New Materials still successfully completed the performance commitments of the first two years, and Jiaxian Co., Ltd. paid the second phase of equity transfer as scheduled.
In 2022, due to the commissioning of the second phase of the project, Shafeng New Materials' operating income will grow rapidly to 382.9455 million yuan, but the net profit will further decline to 12.0699 million yuan, which is only 74% of the promised performance in the current period. So far, the three-year performance commitment period of Shafeng New Materials has expired, with a cumulative net profit of 46.2231 million yuan, a performance commitment completion rate of 103.45%, and the last phase of equity transfer will also be paid in 2023.
However, after the end of the performance commitment period, Shafeng New Materials' net profit in 2023 plummeted to 817,200 yuan, a year-on-year decrease of 93.23%, and its operating income fell by 10.59% to 342,404,800 yuan. According to the 2023 annual report, Jiaxian Co., Ltd. made a goodwill impairment provision of 10.0361 million yuan in the current period and received 1.8603 million yuan in performance compensation.
For the above abnormal situation, the inquiry letter of the Beijing Stock Exchange requires Jiaxian to explain the reasons and reasonableness of the sharp decline in the net profit of Shafeng New Materials after the end of the performance commitment period, whether there is a situation of inter-period adjustment of profits, and whether there is insufficient provision for goodwill impairment in previous years.
The gross profit margin of the subsidiary's products has declined year after year
Jiaxian was established in 2006, officially listed on the select layer of the New Third Board in July 2020, and moved to the Beijing Stock Exchange in November 2021.
Before the acquisition of Shafeng New Materials, the main products (β-dione compounds) of Jiaxian Co., Ltd. were DBM (dibenzoylmethane) and SBM (stearoylbenzoylmethane), with a revenue of 156.1917 million yuan in 2019, of which DBM revenue accounted for 82.61%.
Since 2020, the company has added stearate products, which have quickly become a major source of revenue. After the consolidation of Shafeng New Materials, the revenue scale of Jiaxian shares jumped from about 150 million yuan to about 500 million yuan, and from 2021 to 2023, they will be 479.4757 million yuan, 567.3459 million yuan, and 536.0478 million yuan respectively.
However, the gross profit margin of stearate products performed poorly, falling from 17.11% in 2020 to 6.77% in 2023, a cumulative decrease of 10.34 percentage points. Hanwei Technology(836957. BJ) once introduced in the prospectus of the Beijing Stock Exchange that it and Huamingtai (831750. NQ), Shafeng New Materials occupies a major market share in the domestic stearate product market. According to the annual reports of Hanwei Technology, the gross profit margin of its fatty acid salt additives products was 18.79% in 2020 and decreased to 12.56% in 2023, with a cumulative decline of 6.23 percentage points. Huamingtai's annual report does not disclose the gross profit margin of subdivided products, and the gross profit margin of its main business is relatively stable from 2020 to 2023, increasing from 11.91% to 12.34%.
In recent years, the performance of Jiaxian shares has continued to decline. From 2021 to 2023, the company's net profit attributable to the parent company will be 62.218 million yuan, 60.299 million yuan, and 20.3742 million yuan respectively, and the net profit deducted from the non-attributable parent will be 50.6201 million yuan, 40.024 million yuan, and 16.0054 million yuan respectively.
On February 26, 2024, Jiaxian Co., Ltd. announced its 2023 annual performance report, disclosing that the operating income for the current period was 536.0478 million yuan, the net profit attributable to the parent company was 20.825 million yuan, and the net profit deducted from the non-attributable parent was 13.1563 million yuan. At the same time as announcing the annual report on April 19, the company issued the "2023 Annual Performance Express Report Amendment Announcement", which raised the net profit deducted from the non-attributable parent by more than 20%, mainly because all government subsidies and deferred income were included in non-recurring profits and losses when preparing the original performance express report.