#长文创作激励计划#
Author / Avocado under the stars
Edit/Spinach's Starry Sky
Typography/Hot dry noodles under the stars
Recently, the compulsory acquisition of Greatview Packaging (00468) by Xinjufeng (301296) has caused a stir in the capital market.
It all started with an announcement. On May 9, 2024, Xinjufeng announced that its wholly-owned subsidiary would launch an offer to all shareholders of Greatview Packaging to acquire its shares in cash. As soon as the news came out, in the secondary market, the share price of Xinjufeng went all the way down. The majority of investors seem to be using actions to express a "not optimistic" attitude.
Source: Oriental Fortune official website, Xinjufeng (as of July 24, 2024)
If you are not favored, why do it? It's not because its own growth is being hindered. In recent years, Xinjufeng's revenue growth has been sluggish, and its profitability has also deteriorated. But a strong acquisition, even if successful, may not necessarily go as expected.
First, the growth rate has declined, and the fatigue is obvious
From the perspective of business, Xinjufeng and Greatview Packaging are mainly engaged in the research and development, production and sales of aseptic packaging. In terms of data comparison, in 2023, the operating income of Xinjufeng will be about 1.737 billion yuan, the revenue of Greatview Packaging will be 3.817 billion yuan, the net profit attributable to the parent of Xinjufeng will be 170 million yuan, and the net profit attributable to the parent of Greatview Packaging will be 244 million yuan. Regardless of revenue or net profit, Xinjufeng's operation is a "snake swallowing an elephant".
In fact, Xinjufeng's move is also "forced to be helpless".
From the perspective of the industrial chain, the downstream of Xinjufeng and Greatview Packaging are mainly liquid milk and non-carbonated soft drinks, and mainly liquid milk customers. Among them, Xinjufeng is deeply bound to Yili (600887), and Greatview Packaging is deeply bound to Mengniu (02319). The annual report shows that in 2023, 71.99% of Xinjufeng's revenue will come from Yili.
Source: Xinjufeng 2023 annual report
In the early stage of enterprise development, the key account strategy must be immediate. But as the business grows, the drawbacks of the key account strategy begin to surface. In the long term, when the scale of Xinjufeng and Greatview packaging grows to a certain stage, the growth rate has slowed down significantly.
Source: Flush iFinD, operating income (left: Xinjufeng; Right: Greatview Packaging)
The author believes that there are two main reasons for this:
First, out of supply chain management, "big customers" are never willing to put all their eggs in one basket;
Second, as the country's population continues to age (studies show that young people aged 26-35 consume the highest per capita), liquid milk faucets such as Yili and Mengniu are also struggling to grow.
Source: Flush iFinD - Yili's operating income
In the face of growth pressure, Greatview began to expand into overseas markets with stronger consumer awareness. As a result, Greatview's overseas expansion performance is not bad. In 2023, Greatview Packaging's international revenue will account for 43.22%, while Xinjufeng's overseas revenue will be almost zero.
Second, profits are declining, and money is hard to earn
Although the name of the new Jufeng is good, its profitability is not "Jufeng".
In the aseptic packaging industry, the biggest cost is raw materials. According to the annual report, the cost of raw materials accounts for 88.55% of the business cost of Xinjufeng. It can be seen that the rise in raw material prices has a huge impact on its profitability.
Source: Xinjufeng 2023 annual report
According to the annual report, the raw materials of Xinjufeng are mainly base paper, polyethylene and aluminum foil. However, since the beginning of 2021, various raw materials have increased to varying degrees, resulting in a rapid decline in gross profit margin.
Source: New Jufeng Prospectus
In addition, relying too much on large customers, Xinjufeng is simply unable to transfer cost pressure downstream. The two ends of the attack led to a decline in the gross profit margin and net profit margin of Xinjufeng.
Source: Straight Flush iFinD - Gross Margin on Sales
3. Will a twisted melon be sweet?
Faced with the dilemma of weak growth and declining profits, Xinjufeng tried to reverse the situation through the acquisition of Greatview Packaging. To achieve this, it can be described as a step-by-step operation.
In August 2023, Xinjufeng spent about HK$999 million to complete the acquisition of 28.22% of the equity of Greatview Packaging (which was later diluted to 26.80%), and successfully became the largest shareholder of Greatview Packaging.
Source: Flush iFinD, an important shareholder of Greatview Packaging
Although there are many shares, Greatview Packaging has no substantial control over Xinjufeng through various methods such as vetoing the appointment and removal of directors and independent international business.
The general tender offer was issued again, indicating that Xinjufeng did not achieve its goal and vowed not to give up.
But even if the merger goes smoothly, will it really achieve its purpose? Not necessarily.
First, in the face of the general offer of New Jufeng, the two directors of Greatview have publicly issued a "Public Letter to Shareholders", stating that the tender offer is not in the best interests and should be rejected, and that the offer is a "hostile takeover attempt" by New Jufeng to Greatview. According to the current tense posture of the management of both sides, it is inevitable that a major change will be ushered in after the merger and acquisition;
Second, once the management of international business is replaced, the international business that has just achieved performance may shrink;
Third, if the "strong alliance" cannot be realized, what will be used to repay the 2.7 billion Hong Kong dollars borrowed from the bank by Xinjufeng for this merger and acquisition?
A capital drama has been staged, and I am quietly looking forward to what the ending will be.
Note: This article does not constitute any investment advice. The stock market is risky, and you need to be cautious when entering the market. There is no harm in buying and selling.