Metallurgy / Chemicals / Rubber & Plastics

Recently, Oriental Shenghong issued the “Report on Issuing Shares and Paying Cash to Purchase Assets and Raising Supporting Funds and Related Transaction”. The company plans to purchase Shenghong Petrochemical, Bohong Industrial, CCB Investment, and Bank of China Assets by issuing shares and paying cash. 100% of the shares held by Serbon. According to the consensus of all parties, the final transaction price of the underlying assets of this transaction was determined to be 14.36 billion yuan, and the raised matching funds did not exceed 4.089 billion yuan.

According to data, Oriental Shenghong landed in the A-share market in May 2000, with the development, production and sales of civilian polyester filaments as the core and supplemented by thermal power and other businesses. The company acquired 100% equity of Shenghong Refinery and Honggang Petrochemical in March and April 2019, and invested in the construction of Shenghong Refining and Chemical Integration Project, forming a "crude oil refining-PX/ethylene glycol-PTA-polyester" -Chemical fiber" the new high-end textile industry chain structure has entered a new stage and new pattern of coordinated development between oil refining and chemical fiber.

The target company Serbon is a large private enterprise focusing on the production of high value-added olefin derivatives. It uses integrated production technology to produce ethylene and propylene with methanol as the main raw material to synthesize olefin derivatives. The main products include downstream derivatives of propylene such as acrylonitrile and MMA, and downstream derivatives of ethylene such as EVA and EO.

Serbon's value rose by 3.36 billion yuan

It is worth mentioning that the name of the target Serbon is no stranger to A shares. The reporter noticed that in 2019, Danhua Technology, a listed company, planned to acquire 100% of Serbon’s equity. At that time, the transaction also constituted a backdoor listing. However, after one year of preparation, Danhua Technology has "restructuring progress is uncertain and cannot be achieved." The parties to the transaction announced the reorganization in September 2020 on the grounds of "expectations." According to the plan disclosed by Danhua Technology in 2019, Sirbang was worth 11 billion yuan at that time.

According to calculations, the value of Serbang has soared by 3.36 billion yuan this time "passed on" Dongfang Shenghong.

It should also be pointed out that this transaction constitutes a connected transaction. The plan shows that the counterparties of the transaction include Shenghong Petrochemical, Bohong Industrial, CCB Investment and Bank of China Assets, and Shenghong Petrochemical and Bohong Industrial are enterprises controlled by the actual controllers of Oriental Shenghong, Miao Hangen and Zhu Hongmei.

In an interview with reporters, independent economist Wang Chikun said that the price increase of the subject matter had occurred before, but if the price of the target rose sharply in a short period of time, the rationality of this may still need to be emphasized by the enterprise. "Especially in the case of connected transactions, this phenomenon will even arouse regulatory attention." Wang Chikun said.

According to the "Earnings Forecast Compensation Agreement" and the supplementary agreement, the compensation obligors Shenghong Petrochemical and Bohong Industry promised that the target company will deduct non-net profits not less than 1.784 billion yuan, 1.509 billion yuan, and 1.84 billion yuan in 2021, 2022, and 2023. If the reorganization fails to complete the delivery of the target company before December 31, 2021, the compensation obligor agrees and promises that the target company’s deducted non-net profit in 2022, 2023, and 2024 will not be less than 1.509 billion yuan, 1.84 billion yuan, and 1.779 billion yuan. yuan.

Photovoltaic EVA helps performance growth, Serbon PDH will be put into production soon

According to the company's announcement, Serbon Petrochemical currently has 520,000 tons/year acrylonitrile, 170,000 tons/year MMA, 300,000 tons/year EVA, and 420,000 tons of EO. At present, Serbon Petrochemical is building a propane industrial chain project. After it is completed and put into operation, it will add 700,000 tons/year of propane dehydrogenation and supporting production capacity of 260,000 tons/year of acrylonitrile and 85,000 tons/year of MMA. From the perspective of capacity utilization and production-sales rate, in addition to EVA, the company's other products will be affected by the epidemic in 2020, and the production-sales rate and production-sales rate will be less than 100%. With the good recovery of the epidemic in 2021, the production lines of various products were overloaded in the first quarter, basically achieving a 100% production and sales rate.

In 2019, 2020 and the first quarter of 2021, Serbon Petrochemical achieved net profits of 943 million yuan, 527 million yuan and 1.037 billion yuan attributable to its parent. The main performance increase comes from two aspects: one aspect is the pro-cyclical environment, the price of chemical products has risen sharply year-on-year, the supply and demand of chemical products are improving, and profits have rebounded significantly; the other aspect is chemicals such as acrylonitrile, MMA and EVA. The downstream demand for products continues to grow, especially the growth in photovoltaic installed capacity drives the demand for EVA for photovoltaics.

According to Levima's prospectus, the only domestic companies that can provide EVA for photovoltaics are Silban Petrochemical, Levima Technologies and Ningbo Formosa Plastics. Among them, Silban Petrochemical is the largest company that can provide EVA for photovoltaics. The performance increment is more prominent. As of 2019, the cumulative installed capacity of China's photovoltaic market has reached 141.67GW, a year-on-year increase of 14.41%, and the average annual compound growth rate in the past five years has reached 43.48%. Since the second half of 2020, benefiting from the global “carbon neutral” market demand, the strong demand for EVA photovoltaic materials has driven the price of EVA to continue to rise. In the first quarter of 2021, the average sales price of EVA reached 17,008.22 yuan/ton (excluding tax). price).

According to the company's announcement, the apparent consumption of domestic EVA has grown rapidly from about 1.3 million tons in 2016 to about 1.83 million tons in 2020, with an average annual compound growth rate of about 7%. Since 2013, my country's import dependence on EVA products has dropped from 80% to about 60%, but regardless of photovoltaic material EVA or other types of EVA, it still relies heavily on imports. In the future, with the advancement of "carbon neutrality", the photovoltaic industry will continue to maintain rapid development, which is significantly beneficial to the supply and demand pattern of photovoltaic material EVA and domestic photovoltaic material EVA manufacturers.

On the whole, the sub-sectors where the existing products of Serbon Petrochemical are located are still highly dependent on imports, the supply and demand pattern is good, and the stock capacity still has strong profitability and certain technical barriers. On the other hand, the Sierbang propane dehydrogenation project is under orderly construction, and it will also bring the company's growth guarantee in the future. The injection of Dongfang Shenghong by Serban Petrochemical not only solves the problem of the overlap between the products of Shenghong's large refining and chemical project and the by-products of Serbang, but also helps to build Dongfang Shenghong's integration of "refining and chemical + polyester + fine chemicals" Leading fossils.

Oriental Shenghong said that through this transaction, the listed company will place high-quality assets with strong profitability. The main business of the listed company will further expand and increase the research and development, production and sales of high value-added olefin derivatives. The main product range will add a series of diversified basic and fine chemicals such as acrylonitrile, MMA, EVA, EO and its derivatives. Products, help to enhance the sustainable development capabilities and core competitiveness of listed companies.