“Investors Network” Ding Wanping

At the beginning of January, Hubei Meierya Co., Ltd. (hereinafter referred to as “Meierya”, 605499.SH) announced that it intends to transfer 100% of the shares of the subsidiary Qinghai Zhongyou Health Huijia Pharmaceutical Chain Co., Ltd. (hereinafter referred to as “Qinghai Zhongyou”) to Jilin Zhiyu Technology Co., Ltd., with a transaction price of 100 million yuan.

Merya said that this transaction is conducive to revitalizing the company's existing assets, effectively returning funds, improving the efficiency of asset operation, and has no adverse impact on the normal operation of the company.

It is worth mentioning that this sale is only 3 years since its acquisition. Compared with the previous purchase price of 230 million yuan, the “buy high sell low” operation has attracted market attention.

“Buy high and sell low” attracts attention

On the evening of January 2, Meierya issued an announcement on the sale of assets, stating that the company plans to transfer 100% of its shares in Qinghai Zhongyou Health Huijia Pharmaceutical Chain Co., Ltd. (hereinafter referred to as “Qinghai Zhongyou”) to Jilin Zhiyu Technology Co., Ltd. (hereinafter referred to as “Zhiyu Technology”) at a transaction price of 100 million yuan.

On December 2, 2020, Meierya disclosed that it plans to spend 230 million yuan to acquire 100% of Qinghai Zhongyou's shares held by Gansu Zhongyou Health & Pharmaceutical Co., Ltd. (hereinafter referred to as “Zhongyou Shares”). According to information, as of June 30, 2020, Qinghai Zhongyou's net assets were 42.612,000 yuan, and the price of the above transaction was several times higher than its net assets.

At the time, Meierya said that on the one hand, Qinghai Zhongyou is a well-known enterprise in the pharmaceutical retail industry in Qinghai Province. On the other hand, the pricing is based on peer companies. Whether in terms of static price-earnings ratio or dynamic price-earnings ratio, Qinghai Zhongyou is lower than the average value of share acquisitions of listed companies in the pharmaceutical chain industry.

According to data, Qinghai Zhongyou was founded in April 2002 and is a pharmaceutical chain enterprise. As of June 30, 2020, Qinghai Zhongyou had a total of 48 direct-run stores. Of these, 40 were distributed in the four districts and three counties of Xining City, and 8 were distributed in Ping'an, Ledu, and Huzhu districts and counties in Haidong City.

However, after only about three years until the acquisition, Meierya is now selling Qinghai Zhongyou at a price of 100 million yuan. The “buy high, sell low” operation has attracted market attention.

It is worth mentioning that when Meierya acquired Qinghai Zhongyou in 2020, the valuation was compared to its peers, while when selling the asset in 2024, it used the income method. Why did two transactions with the same asset use two methods for pricing?

In response, Meierya explained that at the time of the acquisition, because Qinghai Zhongyou was in a profitable state, they referred to their peers, and this sale was because Qinghai Zhongyou had already lost money.

Divestiture of pharmaceutical business

Regarding the sale of shares in the pharmaceutical company Qinghai Zhongyou, Meierya said that the transaction was decided through friendly negotiations between the parties to the transaction and related parties based on the company's own business development needs. It helps the company to optimize the asset structure and improve the efficiency of asset use, increase cash inflow, and meet the needs of the company's overall development strategy. At the same time, Meierya believes that this transaction is conducive to revitalizing the company's existing assets, effectively returning funds, improving the efficiency of asset operation, and has no adverse effect on the normal operation of the company.

According to the above announcement, Qinghai Zhongyou was established in April 2002. Its business scope includes pharmaceutical retail; road cargo transportation (excluding dangerous goods), etc. In 2022 and the first 10 months of 2023, Qinghai Zhongyou's revenue was 109 million yuan and 86.8919 million yuan, respectively, and net profit was -4.882 million yuan and -9.232 million yuan, respectively, in a state of loss.

According to the “Asset Assessment Report”, Huijia Pharma's assessed value was 98.6538 million yuan. According to Merya, after negotiations between the two parties to the transaction, the price of this transaction was determined to be 100 million yuan.

It is worth mentioning that as of the end of October 2023, Huijia Pharma's net assets were only 46.1373 million yuan. This also indicates that, calculated from this, its premium rate has more than doubled.

In response, Meierya explained that the evaluation results of Huijia Pharmaceuticals using the asset basis method were 37.376,600 yuan. The evaluation result of the income method was 61.2772 million yuan higher than the asset base method, and the difference ratio was 163.95%. Merya said that the evaluation results estimated by the two evaluation methods have different explanations for the target of the enterprise's value. Under normal circumstances, it is difficult to reflect all intangible resources such as brand advantages and goodwill owned by the enterprise in the evaluation results of the Basic Asset Method.

According to public information, the acquisition of Fang Zhiyu Technology in this transaction was established in October 2020, with a registered capital of only 1 million yuan. The company's business scope includes technology exchange and promotion services; technology consulting, services; enterprise management services; enterprise management information consulting, enterprise management consulting, corporate image and marketing planning and personnel development training, and conference and exhibition services. It is easy to see that Zhiyu Technology is not directly related to the pharmaceutical industry.

Zhang Shaoquan, the legal representative and 51% shareholder of Zhiyu Technology, is also the legal representative of companies such as Jilin Shenyuan Pharmaceutical Co., Ltd., Guangzhou Jiujiu Qinxin Health Industry Technology Co., Ltd., and Jilin Ruitiancheng Investment Center (limited partnership).

According to Meierya, the company has assessed the financial and credit situation of the transferee, believing that the transferee has sufficient ability to pay for the subject matter of this transaction, and that the company carried out Huijia Pharmaceutical's business changes in batches after receiving the payment, so there is less risk that subsequent payments will be recovered.

In addition, the announcement also showed that as of the announcement disclosure date, the balance of the principal amount owed to Meierya by Qinghai friends was 14.6 million yuan. According to the agreement between the company and Huijia Pharmaceuticals, Huijia Pharmaceuticals will begin to make monthly repayments to the company in February 2024, and complete all principal and interest payments no later than December 31, 2024.

According to previous announcements, in 2019, Qinghai Zhongyou had total revenue of 177 million yuan, operating profit of 20.52 million yuan, and realized net profit of 15.54 million yuan. Affected by domestic public health events, Qinghai Zhongyou's total revenue from January to June 2020 reached 101 million yuan, operating profit of 11.0798 million yuan, and net profit of 8.214,400 yuan. In terms of future performance, the company signed performance promises and compensation clauses with Zhongyou Co., Ltd. According to reports, Qinghai Zhongyou net profit attributable to the parent company after deducting non-recurring profit and loss in 2020, 2021, and 2022 was not less than 15 million yuan, 16.5 million yuan, and 18 million yuan, respectively.

After the acquisition of the company was completed, Qinghai Zhongyou only fulfilled its 2020 performance promise, and failed to meet the standards in 2021 and 2022. The three-year performance commitment period contributed only 5.8667 million yuan to the company's cumulative net profit after tax. In response, Merya explained that the main influencing factor in the decline in the revenue of pharmacy chains was a large number of local road closures after the outbreak of domestic public health incidents, and the implementation of pharmacy suspension policies, which led to a sharp drop in drugstore traffic and a decline in performance.

Since Qinghai Zhongyou's performance did not meet the standards, it triggered Zhongyou Co., Ltd.'s compensation clause for the company. However, due to the difficulties of Zhongyou Co., Ltd. began operating in early 2022 and then entered the bankruptcy and restructuring stage, the company did not receive relevant performance compensation. As a result, in 2022, the company reduced the goodwill of Qinghai Zhongyou for the first time, amounting to 99.47 million yuan.

Behind the quest for transformation

In fact, Merya's cross-border experiments in the pharmaceutical business did not stop there.

In 2020, Meierya began to set up the medical retail industry. In addition to acquiring 100% of Qinghai Zhongyou's shares for 230 million yuan, on July 11 of the same year, Meierya plans to purchase 50% of the shares of Gansu Zhongyou Health & Pharmaceutical Co., Ltd. (hereinafter referred to as “Gansu Zhongyou”) by issuing shares and paying cash. The transaction price is tentatively set at 1.5 billion yuan.

At the time, the number of Zhongyou offline pharmacies in Gansu increased from 1,260 in 2016 to over 3,500 in 2020, making it the leading pharmacy with the largest sales volume and number of stores in the northwest. Merya had revenue of only 339 million yuan in the same year, which attracted the attention of the Shanghai Stock Exchange.

In the end, Meierya terminated the acquisition of 50% of Gansu Zhongyou's shares because Gansu Zhongyou involved many subsidiaries and stores, distributed in many regions of the country, and had different levels of profitability and regulation. As a result, business terms such as the scope of Gansu Zhongyou's assets, transaction prices, and performance commitments to be acquired needed to be re-negotiated and communicated, but no agreement was reached.

Behind the transformation of pharmaceutical companies is the difficult situation facing Meierya's main business.

According to the official website, Meierya was founded in 1993 and listed in 1997. Its main business is R&D, design, production and sales of clothing and apparel products; design, development, production and sales of special labor protection products. The company's main products are branded men's clothing, branded women's clothing, export processing, and hotels.

In recent years, due to rising garment costs and intense market competition, Meierya's performance has not been ideal.

In the first three quarters of 2020 to 2023, its revenue was approximately $339 million, 486 million yuan, $432 million, and $323 million, respectively, up -24.22%, 43.26%, -11.1%, and -3.62% year-on-year respectively.

At the time, Meierya mentioned in the report, “Due to the slow recovery in terminal consumer demand, the company's apparel business sector did not show a clear recovery trend; the overall performance of the pharmaceutical chain retail business was poor due to increased competition in the pharmaceutical market.”

How to transform and break the game after divesting medicine is still a test facing Merya. (Produced by Thinking Finance) ■