"Investor Network" Ning Bin
Edited by Wu Yue
Recently, Zhejiang Zhongshan Chemical Group Co., Ltd. (hereinafter referred to as "Zhongshan Chemical") updated the application materials and replied to the Shanghai Stock Exchange's third inquiry letter, one step closer to listing.
This is not the first time that Zhongshan Chemical applied for an IPO. In May 2014 and December 2017, Zhongshan Chemical successively cooperated with sponsors Guosen Securities and Caitong Securities to plan to list on the main board of the Shanghai Stock Exchange. The first time it terminated the guidance because it did not reach a complete agreement with Guosen Securities, and the second time it suspended the listing process because it did not update its financial information within the inquiry time limit.
At the end of 2020, Zhongshan Chemical replaced the securities company with Minsheng Securities, signed a listing guidance agreement, and received an acceptance notice issued by the Shanghai Stock Exchange in June 2021, starting the road to break through the third IPO.
Zhongshan Chemical was founded in 1998 and is an old pesticide production enterprise. It started with herbicides. Its main business is green pesticides such as herbicides, insecticides, and fungicides. The main products are nitrosulfonone, syringe, and benzine syringe.
According to the prospectus, the pesticide original drug production capacity in 2020 was 57,000 tons/year, and the pesticide preparation production capacity was 38,500 tons/year. Zhongshan Chemical's production and sales volume of nitrosulfonone raw drugs ranked first in the country in 2020, and the production and sales volume of nitrosulfonone raw drugs ranked third in the country in 2020.
nitrosulfonone is a triketone herbicide developed by Syngenta, mainly used in corn, with low dosage, long validity and strong mixing properties; nitrosulfonone (chemical name: bendasone) is mainly used for the protection of crops such as rice, soybean, fruits, vegetables, etc., and has high safety; nitrosulfonone is a triketone herbicide developed by Bayer, Germany, mainly used for beet crop protection, represented by atrazine (chemical name: atrazine), used for corn, sorghum, sugar cane, forest trees, etc.
Thanks to the intensification of agricultural production, the promotion of genetically modified crops and the application of biofuels, herbicides have become the largest pesticide species in the world.
According to Phillips McDougall data, the global sales of herbicides, fungicides and pesticides in 2020 were US$26.175 billion, US$16.356 billion and US$15.146 billion, respectively.
Chart 1: Global sales share of pesticides for crops in 2020
(Source: Phillips McDougall Phillips McDougall)
The global pesticide industry has formed a monopoly competitive landscape dominated by international agrochemical giants. Bayer, Syngenta, BASF, and Codyvar monopolize the research and development of new pesticide varieties, and industry integration is accelerated, such as China Chemical's acquisition of Syngenta, Dow and DuPont merged into Codyvar, Bayer acquired Monsanto, and United Phosphate acquisition of Alisda.
Foreign manufacturers such as Newfam, Fumeishi, Sumitomo Chemical, and United Phosphate have an integrated agricultural chemical industry chain and are in the second echelon. Domestic enterprises such as Liming Co., Ltd. (002734.SZ), Runfeng Co., Ltd. (301035.SZ), Fengshan Group (603810.SH), Yingtai Biologics (833819), Zhongshan Chemical, etc. are generic original drugs and are in the third echelon.
Overseas subsidiaries have not yet made profits, and the proportion of receivables has increased year by year
According to the prospectus, Zhongshan Chemical's operating income from 2018 to the first half of 2021 was 1.75 billion yuan, 1.948 billion yuan, 1.826 billion yuan and 978 million yuan, respectively, and its net profit was 106 million yuan, 62.11 million yuan, 65.08 million yuan and 21.9 million yuan, respectively, and its comprehensive gross profit margin was 23.26%, 20.86%, 17.80%, and 16.95%, respectively.
Zhongshan Chemical Pesticide Sales Revenue is mainly herbicides, supplemented by pesticides and fungicides, among which herbicide revenue accounts for more than 90% of the main business revenue.
prospectus shows that the sales price of nitrosulfonone products of Zhongshan Chemical is higher than the market price, and the gross profit has increased year by year and has a large increase, mainly due to the increasing amount of nitrosulfonone products sold to Shanghai Xiangyuan Chemical (Hong Kong) Co., Ltd. (referred to as "Xiangyuan Chemical"), which is a Chinese buyer of the domestic seed giant Syngenta.
At the same time, the nitrothone product is the designated model of Syngenta, so this product is gradually replacing the traditional products Atrazine and Amitjing, becoming the main source of profit. From 2019 to the first half of 2021, Zhongshan Chemical's sales on Xiangyuan Chemical showed a growth trend and had a high dependence on this customer.
Chart 2: The first five major customers in the first half of 2019-2021
(Source: Zhongshan Chemical Prospectus)
It is worth noting that Xiangyuan Chemical is the largest customer and a raw material supplier. In 2019 and 2020, Zhongshan Chemical purchased the main raw materials of nitrosulfonone raw medicine from Xiangyuan Chemical: methylsulfone benzoic acid and cyclohexanedione, with the purchase amounts in the two years of 50.6445 million yuan and 127 million yuan respectively.
prospectus shows that Zhongshan Chemical's products are mainly exported, and the proportion of export revenue to main business revenue is 61.95%, 75.15%, 71.87% and 55.69% respectively, which also reflects the obvious outward-oriented characteristics of the pesticide industry.
According to the latest prospectus, four domestic holding subsidiaries under Zhongshan Chemical have established or acquired 19 overseas sales subsidiaries or subsidiaries, and the overseas companies have not yet made full profits.
At the same time, export and export business is mainly quoted and settled in US dollars. Due to exchange rate fluctuations, some exchange gains and losses and forward swap transaction losses were generated, and the exchange rate fluctuations in 2018 and 2021 were -7.375 million yuan, 10.7416 million yuan, -5.4436 million yuan, and 22.6574 million yuan, respectively. Exchange rate fluctuations in 2018 and 2020 caused great losses.
In terms of accounts receivable balance, the balance of accounts receivable in the first half of 2018-2021 was RMB 328 million, RMB 364 million, RMB 437 million and RMB 265 million, respectively, accounting for 18.74%, 22.92%, 23.93% and 27.09% of the operating income in each reporting period, respectively, showing an annual growth trend, and this proportion is higher than the proportion of receivable revenue of comparable companies in the same industry.
Regarding accounts receivable, Zhongshan Chemical stated in its prospectus that it already has a large industry voice and product bargaining power in the field of international agricultural herbicides. Since most of the customers are international multinational companies in the field of pesticides, the collection situation is good, and the possibility of bad debts occur is small, and the quality of accounts receivable is better.
security compliance affects performance, and the financing channel is single
In terms of production, Zhongshan Chemical has 4 domestic factories, located in Zhejiang, Anhui, Jiangsu and Inner Mongolia. Among them, the Zhongshan factory in Changxing, Zhejiang carried out pesticide preparation production, Zhongshan, Anhui and Zhongshan, Xiangshui, Jiangsu carried out pesticide original medicine production, and middle and high-end pesticide intermediates and original medicine production.
In March 2019, due to the "Xiangshui 3.21 explosion accident", the chemical park in Chenjiagang Town, Xiangshui County, the park was suspended, resulting in the suspension of production of the Zhongshan plant in Xiangshui, Jiangsu, and sales revenue declined.
In the prospectus, from 2018 to the first half of 2021, the amount of work suspension losses in non-operating expenses was RMB 7.6072 million, RMB 12.4408 million, RMB 36.3966 million and RMB 29.9123 million, respectively. The main reason is that production safety compliance is punished, or the emissions and penetration of environmentally friendly pollutants involved, and the suspension of production is caused by rectification and production suspension.
In terms of debt ratio, the company's debt-to-asset ratio in the first half of 2018-2021 was 64.45%, 67.66%, 68.01%, and 72.03%, respectively. The industry comparable companies Limin Co., Ltd., Runfeng Co., Ltd., Fengshan Group, and Yingtai Biotechnology. The average debt-to-asset ratio of the four companies in 2018-2021 was 36.51%, 39.82%, 39.28%, and 37.75%.
At the same time, Zhongshan Chemical's financing channels are relatively single. According to the prospectus, the company mainly relies on bank loans, bank acceptance bills and retained profits to make up for working capital. The funds required for its production, operation and development also mainly rely on commercial credit means such as accounts payable, notes payable, and bank loans, bringing certain short-term debt repayment risks to its operations.
Zhongshan Chemical stated in its prospectus that as the working capital gap increases, it is urgent to make up for the working capital gap through this fundraising to expand the scale of operations, while improving the capital structure and improving the company's profitability.
This Zhongshan Chemical IPO plans to raise 600 million yuan to add 30,000 tons of pesticide preparations and 4,000 tons of pesticide raw medicines per year. Judging from the production and sales rates and capacity utilization rates listed in the prospectus, the production and sales rates from 2018 to 2021 both reached more than 100%, with the capacity utilization rates of 66.09%, 47.32%, 66.43%, and 51.35%. The capacity utilization rate is not high, mainly due to insufficient start-up.
Chart: 3: Use of funds to be raised
(Source: Zhongshan Chemical Prospectus)
Finally, it is worth noting that Zhongshan Chemical did not pay social insurance and housing provident fund in 2019 and 2020, of which the total number of employees in 2019 was 899, and the proportion of employees who paid social insurance accounted for 76%, and the number of provident fund payments accounted for 75%. The total number of people in 2020 was 995, and the social insurance and housing provident fund payment ratio increased to 85% and 82%, which has not been fully covered, and the standardization of the company's internal management is questionable.
In the future, in the context of more attention from agricultural agronomicization, Zhongshan Chemical's IPO will continue to pay attention to whether it will be smooth in the context of more attention from capital and policy. (Produced by Siwei Finance) ■
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