Rubbing heat or business transformation? Taurine leader Yongan Pharmaceutical's cross-border new energy has caused controversy

China Times (www.chinatimes.net.cn) reporter Yu Na reported in Beijing

As a pharmaceutical company with taurine as its main business, it has turned to new energy to seek business growth, and a cross-border operation of Yongan Pharmaceutical has caused controversy.

In February this year, Yong'an Pharmaceutical acquired 60% of the equity of Qianjiang Zhongji Hydrogen Energy Development Co., Ltd. held by Qianjiang Fuyang Chemical Co., Ltd. for 36 million yuan, becoming the majority shareholder of Zhongji Hydrogen Energy. At that time, Zhongji Hydrogen Energy had not yet officially started operations.

New energy is indeed a big hit in the current investment market, but Yongan Pharmaceutical's cross-border has attracted a lot of doubts, is it for the capital market to rub heat or actively transform to find new business growth points?

However, the cross-border pace of Yongan Pharmaceutical has not changed, on June 11, Yongan Pharmaceutical issued an announcement on the completion of the registration of industrial and commercial changes by Wuhan Low-dimensional Materials Research Institute Co., Ltd., a shareholding company, so that Yong'an Pharmaceutical has become a new shareholder of Wuhan Low-dimensional and holds 40% of its equity.

Does the above cross-border have an expected impact on the secondary market of Yongan Pharmaceutical? Yongan Pharmaceutical landed on the small and medium-sized board of the Shenzhen Stock Exchange in 2010 at an issue price of 31 yuan per share, but since then, Yongan Pharmaceutical's stock price has experienced a break, and the recent important market changes have been on May 17, 18 and 28.

The representative of Yongan Pharmaceutical Securities said in an interview with the "China Times" reporter that Zhongji Hydrogen Energy has now carried out business activities, but the hydrogen energy business has not yet been officially put into production, and it is currently in the trial production stage. The company's cultivation of new business growth points does not affect the company's development goals of transforming into a health industry.

Cross-border new energy has attracted controversy

Taurine is a sulfur-containing non-protein amino acid, plays an important role in the human body, has a wide range of applications and markets in medicine, food additives, beverages and nutritional products, etc., in the United States, Japan and other countries even stipulate that taurine must be added to infant food.

Although Yongan Pharmaceutical is located in a corner of Qianjiang river in Hubei Province, it occupies the leading position of taurine in the world. According to the 2020 annual report, Yongan Pharmaceutical has the world's largest taurine production base, and its products occupy about 50% of the market share, of which more than 80% is used for export.

Affected by the epidemic, the serious shortage of taurine production capacity has caused a tight supply and demand, and the price of taurine has risen accordingly. Even because taurine has enhanced immunity function, overseas demand is more exuberant. In the face of changes in market demand, Yongan Pharmaceutical has carried out an expansion project with an annual output of 30,000 tons of taurine food additives, and the production capacity of taurine has doubled to 58,000 tons.

But then Yongan Pharmaceutical made an unexpected decision: at a price of 36 million yuan, it acquired 60% of the equity of Qianjiang Zhongji Hydrogen Energy Development Co., Ltd. held by Qianjiang Fuyang Chemical Co., Ltd., and after the completion of this transaction, Yongan Pharmaceutical will become the majority shareholder of Zhongji Hydrogen Energy.

According to the disclosure, Zhongji Hydrogen Energy mainly conducts research and development of hydrogen energy and distributed energy projects; research and development and sales of supporting equipment for hydrogen refueling stations; wholesale and retail of mechanical and electrical equipment. At the time of its acquisition by Yongan Pharmaceutical, Zhongji Hydrogen Energy had not yet officially started operations. But it was incorporated as early as May 2018.

On February 7, fuyang chemical held 60% of the equity of Zhongji Hydrogen Energy was registered under the name of Yongan Pharmaceutical, and the registration procedures for industrial and commercial changes related to the equity transfer have all been completed, and the "Business License" issued by the Qianjiang Administration for Industry and Commerce has been obtained.

At present, new energy is indeed a big hit in the investment market, but Yongan Pharmaceutical's large-scale cross-border is still controversial, in order to rub the heat of the capital market or actively transform to find new business growth points?

Yongan Pharmaceutical announced that hydrogen energy belongs to clean energy, the acquisition of Zhongji Hydrogen Energy is the company's initiative to implement the transformation development strategy, which is conducive to cultivating new development directions and profit growth points, and Zhongji Hydrogen Energy uses coal to hydrogen, the cost is relatively low, and the economic feasibility is higher. After the completion of this investment, the company will further integrate the resources of both sides, complement each other's advantages, enhance synergy effects, and produce benefits as soon as possible, but there may also be changes in market conditions, difficulties in personnel integration, insufficient operating capabilities, etc., resulting in risks that do not meet expectations.

Industry insiders believe that the current market attention to hydrogen energy and hydrogen fuel is relatively low, the most important reason is the high cost of hydrogen energy promotion, and its production, transportation, storage, and hydrogenation have a lot of costs. At the same time, the hydrogen refueling station has relatively high requirements for the site environment, and many cities are still in the exploratory stage. As a pharmaceutical company whose main business is taurine, Yongan Pharmaceutical uses this as a new business growth point, which is really unconvincing.

In this regard, the representative of Yongan Pharmaceutical Securities responded that investors may feel that hydrogen energy has little relevance to the company's main business, in fact, the production of taurine and hydrogen energy belongs to the chemical industry, there is integration in the process, and the company will integrate resources after the acquisition of Zhongji Hydrogen, inject technology, talent and management, at least the future market sales do not have to worry.

How to break the game in the single business of the main business

According to the 2020 annual report, Yongan Pharmaceutical achieved operating income of 1.172 billion yuan, down 14.42% year-on-year; achieved operating profit of 1.33 yuan, an increase of 13.90% year-on-year; net profit attributable to shareholders of listed companies was 105 million yuan, an increase of 17.38% year-on-year. Among them, taurine revenue accounted for 49.63%, an increase of 1.43% over the previous year.

In fact, in recent years, the overall performance of Yongan Pharmaceutical has been good. According to the annual report data, the performance of 2017 and 2018 has maintained growth, and after a round of growth in the taurine market, the price has gradually returned in 2019, and the gross profit margin has declined, resulting in a decrease in profits. As taurine is recognized by more and more consumers in China, and the market application is expanded, the market demand for taurine may continue to grow.

However, taurine is a niche market, the global demand is about 65,000 to 70,000 tons, the maximum production capacity of Yong'an Pharmaceutical has reached 58,000 tons, plus other competitors in the market, Broad Fuchi, Jiangsu COSCO, Jiangyin Huachang and several Japanese companies, the actual output of the market has exceeded the global demand.

At the same time, taurine investment is more profitable, and high requirements for environmental protection, environmental protection policies are becoming stricter and labor costs are rising, forming an industry ceiling, the annual report discloses that Yongan Pharmaceutical will invest about 8.567 million yuan in safe production in 2020, and about 20 million yuan in environmental protection.

The annual report disclosed that in the 2019 annual report, the new taurine project was operating normally, with an annual output of 31647.44 tons, an increase of 2.18% year-on-year; sales volume of 29149.77 tons, down 4.19% year-on-year, achieving sales revenue of 573 million yuan, down 25.7% year-on-year.

Therefore, the 2019 annual report proposes that the transformation to the health industry is the company's goal, on the one hand, to further sort out the current health product business, and strive to promote the sales of its own health care products, OEM/ODM business and imported health care products, and expand the scale of health care products; On the other hand, we will strengthen the investigation of projects in the field of big health and continue to promote the transformation work.

In the past two years, Yongan Pharmaceutical has been seeking transformation and expanding its business scope. The 2020 annual report discloses that the company's business also includes the research and development, production and sales of health foods, as well as the import and sales of foreign health foods and equity or industrial investment related to the health field. During the reporting period, the health business achieved operating income of 144 million yuan, an increase of 45% year-on-year, and a loss of 9.68 million yuan. In 2020, the revenue of health food accounted for 12.05%, an increase of 40.91% over the previous year.

However, this acquisition of Zhongji Hydrogen Energy is considered by the industry to be far from the direction of the transformation of the health industry, and since then, the cross-border footsteps of Yongan Pharmaceutical seem to be going farther and farther. On April 30 this year, Yongan Pharmaceutical increased its capital and acquired equity in Wuhan Low-dimensional Materials Research Institute Co., Ltd. (hereinafter referred to as "Wuhan Low-dimensional") with its own funds of 80 million yuan. Wuhan's low-dimensional business involves low-dimensional materials, quantum materials, perovskite materials, nanomaterials, new energy materials, etc., and is a leading enterprise in the graphene industry.

In this regard, the representative of Yongan Pharmaceutical Securities said that the company's business transformation has been to the development of the health industry, its Yongan Health Care Food operation situation has improved significantly, from the first quarter of last year began to make a profit, its own brand and agency brand bodybuilding sales performance have increased, this year will continue to look for health industry transformation projects.