Recently, the common people (603883.SH) issued a fixed increase plan, intended to raise no more than 1.74 billion yuan, which is the largest fundraising since the listing of the company. The fundraising will help reduce the company’s asset-liability ratio and ease the financial strain, but at the same time, the company’s controlling shareholders have completed a huge reduction in their holdings.
With the expansion of the M&A scale, the goodwill scale of Laobao will exceed 3 billion yuan. However, for the acquisition with the highest amount, the company did not set any performance commitment, and the risk of goodwill impairment will be entirely borne by the company itself. Common people not only to the acquisition of the disclosure is not complete, for the investment of a total scale of more than 1 billion yuan in the announcement and regular financial statements of the project did not specify in detail, there are obvious flaws in the letter. In addition, compared with its peers, the company’s bad debt provision policy is relatively aggressive, advance payment and R&D capitalization ratio is also high.
Side fixed increase side reduction
On March 3, common people released non-public a-share stock plan, to increase to raise no more than 1.74 billion yuan, after deducting costs issue will be used for the following items: 573 million yuan investment in new chain pharmacies projects, 279 million yuan investment in east China pharmaceutical product sorting processing project, 366 million yuan investment enterprises to build A new digital platform and retail projects, used to supplement working capital of $522 million.
As for the proposed enterprise digital platform and new retail construction project, common people said in the feasibility analysis report that the project consists of four sub-projects, namely the digital intelligent engine platform, the digital application service platform, the digital aggregation service platform and the enterprise digital platform. After the completion of the project, the management cost can be reduced, the production efficiency can be improved, the intelligent decision-making platform and the intelligent pharmacy can be built, and the rapid development of the enterprise can be supported more efficiently and the competitiveness of the enterprise can be enhanced.
It is worth noting that fellow Dashenlin (603233.sh) also intends to implement a similar project. According to the prospectus for the convertible bonds, Dashenlin’s total budget for the “new retail and enterprise digital upgrade project” is only 120 million yuan. However, in the first three quarters of 2019, Dashenlin and ordinary people have similar income scale, while Dashenlin’s income is higher. Why do ordinary people’s budget investment in enterprise digital platform and new retail construction project is more than 200 million yuan higher than Dashenlin’s? Is there any possibility of overfundraising?
In fact, the fixed increase is the people appear on the market since the amount of the highest fundraising plan. In April 2015, the public IPO raised 1.099 billion yuan; In 2017, the company raised 800 million yuan through private placement, and in 2019, it issued another 327 million yuan of convertible bonds.
As of September 30, 2020, the asset-liability ratio of ordinary people was 57.18%, including 1.369 billion yuan of short-term loans, 40.98 million yuan of non-current liabilities due within one year, 126 million yuan of long-term loans, 1.536 billion yuan of interest-bearing liabilities, and only 1.027 billion yuan of monetary funds.
If the private placement is implemented smoothly, the capital shortage of listed companies can be greatly alleviated. The total amount of capital raised by ordinary people after IPO and listing will reach 3.967 billion yuan, accounting for 95.54% of the equity belonging to the parent company and 15.69% of the current total market value, which will greatly dilute the capital stock.
From the above situation, the common people book is short of money. Surprisingly, as of June 30, 2020, in addition to the monetary funds of 1.279 billion yuan, there are 250 million yuan of public structured deposits on the company’s books.
It is worth noting that at the same time that ordinary people are selling large nominal increase plans, important shareholders are reducing their own stocks significantly. Among them, the reducing behavior of controlling shareholders is particularly noteworthy. On May 14, 2020, Laobao announced that the controlling shareholder of the company, Laobao Pharmaceutical Group Co., Ltd. (hereinafter referred to as “the Pharmaceutical Group”), reduced its holding of shares of the company by 5.73336 million shares, with a reduction amount of 426 million yuan. On September 23, 2020, Pharmaceutical Group reduced its holding of shares of the company by 4.3734 million shares, with a reduction amount of 321 million yuan, and a total reduction of 747 million yuan in 2020.
Goodwill “dark thunder”
In addition to the new chain drugstores to expand the scale of business, ordinary people also through large-scale acquisitions to expand the scope of business, achieve performance growth, but also bring hidden dangers.
On December 21, 2020, the company announced that it planned to acquire 100% shares of Chifeng Renchuan Drugstore Chain Co., Ltd. (hereinafter referred to as “Renchuan Drugstore”) with its own funds at a purchase price of 680 million yuan.
According to the acquisition announcement, by the end of August 2020, the total assets and net assets of Renchuan Drugstore are 233 million yuan and 96.64 million yuan respectively. From January to August in 2019 and 2020, the operating income of Renchuan Drugstore is 418 million yuan and 295 million yuan respectively, and the deduction of non-net profit is 31.36 million yuan and 19.92 million yuan.
The price of the above transaction refers to the market valuation parameters of chain drugstores, and the acquisition PE ratio is 19.13 times. In the acquisition announcement, the company listed the cases of comparable M&A transactions. The average and median value of the corresponding acquisition PE were 20.74 times and 20.83 times respectively, slightly higher than the 19.13 times of this acquisition. Therefore, the company believes that the valuation of this transaction is reasonable. It should be noted that most of these comparable deals are structured with performance commitments.
In terms of acquisition history, the purchase price of this time was the highest, and the goodwill scale formed was significantly higher than other targets. However, the transaction party did not make any performance commitment. Once the future performance of Renchuan Drug-store fell short of expectations, the goodwill impairment loss would be fully paid by the listed company.
At the end of 2014, before the listing, the total goodwill of ordinary people was only 399 million yuan. Since its listing, the goodwill of Laobaixing has increased substantially. As of the end of the third quarter of 2020, the book balance of goodwill of Laobaixing has reached 2.69 billion yuan. If the goodwill generated by the acquisition is included, it is expected to overtake Yifeng Pharmacy (603939.SH) to become the most reputable of the four listed retail pharmacies.
According to the mid-report in 2020, the assets acquired by ordinary people with high goodwill include Lanzhou Huirentang, Tongliao Zeqiang, Anhui Miningyuan, Hunan Huairen Healthy Health and Yangzhou Baixinyuan, with the goodwill balance of 285 million yuan, 236 million yuan, 194 million yuan, 149 million yuan and 115 million yuan respectively.
From 2016 to 2018, Lanzhou Huirentang promised that its annual net profit would be no less than 36 million yuan, 43.2 million yuan and 51.8 million yuan respectively, but the actual net profit was 41.07 million yuan, 54.71 million yuan and 50.21 million yuan respectively. Lanzhou Huirentang failed to fulfill its performance commitment in 2018, but its cumulative performance in the three years was 146 million yuan, exceeding the cumulative commitment of 131 million yuan.
However, during the performance commitment period, people to Lanzhou Huirentang as the acquisition of the main body to complete a number of acquisitions, but these acquisition targets brought to its performance increment is completely unknown. The cumulative acquisition cost of Lanzhou Huirentang was 38.32 million yuan in 2017 and 4.9 million yuan in 2018. In 2017, the net profit of Lanzhou Huirentang was 54.71 million yuan, which increased 13.64 million yuan compared with the performance of the previous year. Is this influenced by the performance of the acquisition target? Lanzhou Huirentang has successfully fulfilled its performance commitment, does it include the performance contribution of the acquisition target?
Yangzhou Baixinyuan also exists in a similar situation. From 2016 to 2018, Yangzhou Baixinyuan promised that its annual net profit would be no less than 10 million yuan, 12 million yuan and 14 million yuan respectively. In the three years, the company actually completed 37.27 million yuan, and the cumulative performance completion rate was 104%. The company also successfully completed the performance commitment. In 2017, the public took Yangzhou Baixinyuan as the acquisition subject to complete a number of acquisitions, with a cumulative acquisition cost of 14.2 million yuan. So how have these acquired assets performed, and have they “helped” them meet their performance commitments?
After the performance commitment of Lanzhou Huirentang was fulfilled, people took Lanzhou Huirentang as the main body to acquire a number of drugstore assets. In 2019, the accumulated acquisition cost reached 61.68 million yuan, but the net profit of Lanzhou Huirentang was 53.84 million yuan, an increase of only 3.63 million yuan over the previous year. Is Lanzhou Hui Ren Tang performance growth is slow, or the acquisition of assets poor performance?
The above information “black hole” makes the acquisition target performance commitment to complete a cloud of doubt.
According to the financial report, Tongliao Zeqiang, Jiangsu Parkafur, Nantong Puze and other companies have achieved cumulative performance that exceeds the promised performance; The actual performance of Anhui Lingjia Medical and Sanpintang is lower than the promised value, but the commitment period of these assets is to 2020 or 2021, and it remains to be seen whether the performance commitment can be fulfilled.
In fact, for most of the assets acquired, people do not make full disclosure about what happened before and after the acquisition. Only according to the disclosed information, the people in the history of many underlying assets purchase prices are expensive.
In 2018, people in anhui province, and its subsidiaries acquired logical administration large pharmacy chain co., LTD. (hereinafter referred to as the “anhui logical administration”), guangxi and zhi forest pharmaceutical co., LTD. (hereinafter referred to as “guangxi and zhi forest”), anhui medicinal food hall large pharmacy chain co., LTD. (hereinafter referred to as the “anhui medicinal food hall”) pharmaceutical retail business and other relevant operational assets, and wuxi hall with the doctrine of the medicine chain co., LTD. (hereinafter referred to as “wuxi hall with the doctrine of”) 55% stake, the purchase price is 37 million yuan and 25 million yuan respectively, 29 million yuan, 33 million yuan.
AnnounCEMENT shows that Anhui Zhengtong 2017 revenue and net profit are 2018 million yuan and -1.14 million yuan respectively, in the first half of 2018 are 14.61 million yuan and -570,000 yuan respectively; In 2017, the revenue and net profit of Anhui Medicine-Food Restaurant were 10.12 million yuan and -0.8 million yuan respectively, and in the first half of 2018, the revenue and net profit were 7.41 million yuan and -1.61 million yuan respectively, with continuous losses. The annual income and net profit of Guangxi Shenzhilin were 21.17 million yuan and 610,000 yuan respectively in 2017, and the annual income and net profit of Wuxi Sanpintang were 39.4 million yuan and 170,000 yuan respectively in 2017. The PE acquisition reached 40.98 times and 353 times respectively, indicating that the purchase price was seriously high.
In addition to the above acquisitions, the common people did not actually disclose most of the acquisitions in the formal announcement and the announcement of the board of directors’ resolutions, only briefly mentioned in the annual report, the quality of the underlying assets, performance, whether the purchase price is reasonable and other circumstances are completely unknown, including a number of acquisitions with a price of more than 100 million yuan.
In November 2019, the company acquired the related assets and business of retail pharmacies of Shanxi Huaqiang Baihui Pharmaceutical Chain Co., Ltd with RMB 111 million; In March 2020, the company acquired 111 stores of Hunan Huairen Great Health Industry Development Co., Ltd. for 150 million yuan. These two acquisitions with a price of over 100 million yuan brought goodwill of 98.72 million yuan and 149 million yuan respectively, and the people not only did not make any disclosure, but also did not have any performance commitment.
In recent years, the pharmaceutical retail listed companies continue to expand the layout, the industry heat increased sharply. In this case, the acquisition cost is likely to be higher than the actual value, although conducive to rapid market expansion, but the resulting high goodwill and potential impairment risk cannot be ignored.
In fact, the public information disclosure problems are more than that.