Recently, Chengda Bio issued an announcement that its actual controller is intended to be changed from the State-owned Assets Supervision and Administration Commission of the People's Government of Liaoning Province (hereinafter referred to as "Liaoning Provincial SASAC") to no actual controller.

Behind this is that Shaoguan Gaoteng became the controlling shareholder of Liaoning Chengda through the board of directors election, and indirectly controlled 54.67% of Chengda Bio's equity through Liaoning Chengda. Shaoguan Gaoteng is a wholly-owned subsidiary of Guangdong Private Investment Co., Ltd. (hereinafter referred to as "Guangdong Private Investment"), and there is no actual controller after the equity structure is penetrated.

At the same time, Chengda Bio also issued a tender offer announcement. The tender offerer is Shaoguan Gaoteng, which will acquire the unrestricted tradable shares held by all other shareholders of Chengda Bio except Liaoning Chengda, and will not terminate Chengda Bio's listing status. The tender offer price is 25.51 yuan per share.

According to Chengda Bio's 2024 semi-annual report, its main business is the research and development, production and sales of human vaccines. The main products currently on the market are human rabies vaccine (Vero cells) and human Japanese encephalitis inactivated vaccine (Vero cells). The main products under development include human diploid rabies vaccine, quadrivalent/trivalent influenza vaccine, 15-valent HPV vaccine, etc.

Affected by multiple factors, Chengda Bio's performance has continued to be under pressure in recent years. Its operating income has declined from 2.088 billion yuan in 2021 to 1.750 billion yuan in 2023. Its revenue in the first three quarters of 2024 was 1.303 billion yuan, a year-on-year decrease of 2.40%; its net profit attributable to the parent company also continued to decline, from 892 million yuan in 2021 to 466 million yuan in 2023. Its net profit attributable to the parent company in the first three quarters of 2024 was 330 million yuan, a year-on-year decrease of 28.87%.

Deng Yong, director of the Health and Health Law Research and Innovation Transformation Center of Beijing University of Chinese Medicine, told the 21st Century Business Herald reporter that Chengda Bio's corporate background has changed from state-owned assets to private enterprises. Guangdong Minsheng Investment, as the power behind Shaoguan Gaoteng, can provide support in terms of funds, management, market resources and decision-making to promote the development of Chengda Bio.

After five years of dormancy, there will be results

The story of Shaoguan Gaoteng and Chengda Bio started with Shaoguan Gaoteng "seizing power" from Liaoning Chengda in the hands of the Liaoning Provincial State-owned Assets Supervision and Administration Commission. On the evening of January 1, 2020, Liaoning Chengda, the controlling shareholder of Chengda Bio, issued an announcement that as of December 31, 2019, Shaoguan Gaoteng had increased its holdings several times and its shareholding ratio reached 5%, constituting a placard.

Subsequently, Shaoguan Gaoteng did not stop buying. In February 2020, after signing a share transfer agreement with Xinhualian, Shaoguan Gaoteng's shareholding ratio reached 12.46%, becoming the largest shareholder of Liaoning Chengda. The former controlling shareholder, Liaoning Provincial State-owned Assets Supervision and Administration Commission, ranked second with a shareholding ratio of 11.11%. As of December 2020, Shaoguan Gaoteng held 234 million shares of Liaoning Chengda, accounting for 15.30% of the company's total share capital, and this shareholding ratio has remained to this day.

Also in 2020, Chengda Bio wanted to go public on the Science and Technology Innovation Board, and its listing application was accepted in May. However, the issue of control of Chengda Bio has attracted attention from the regulatory level.

In response, Shaoguan Gaoteng issued "Notices" twice in February and August 2021, respectively, clarifying that it did not seek actual control over Liaoning Chengda. In the "Notice" in August, Shaoguan Gaoteng extended the deadline from the previous 12 months from the date of Chengda Bio's issuance and listing to 24 months.

In October 2021, Chengda Bio successfully went public at an issue price of 110 yuan per share. Since then, Shaoguan Gaoteng has not mentioned the issue of actual control of Liaoning Chengda.

Until February 12 this year, Liaoning Chengda held an election meeting for the new term. The new board of directors consists of 9 directors, including 6 non-independent directors and 3 independent directors. Among them, Shaoguan Gaoteng nominated 4 non-independent directors and has passed the qualification review of the Nomination Committee of the 10th Board of Directors of Liaoning Chengda.

If the above 4 candidates are approved by the Liaoning Chengda Shareholders Meeting to be held on February 28, the controlling shareholder of Liaoning Chengda will be changed from the Liaoning Provincial State-owned Assets Supervision and Administration Commission to Shaoguan Gaoteng. At the same time, Shaoguan Gaoteng will also indirectly control 54.67% of Chengda Bio's equity through Liaoning Chengda, which means that state-owned assets will withdraw from Chengda Bio.

When announcing the change of the actual controller, Chengda Bio also issued a tender offer announcement, with the tender offer price of 25.51 yuan per share. This price is based on the arithmetic average of the daily weighted average price of Chengda Bio's stock in the 30 trading days before the announcement, and is regarded as a "low-price" acquisition by the industry.

In this regard, Deng Yong explained that according to the "Management Measures for the Acquisition of Listed Companies", when an investor holds or holds with others through agreements or other arrangements a voting share issued by a listed company reaches 30%, if the acquisition continues, it shall make an offer to all shareholders of the listed company to acquire all or part of the shares of the listed company in accordance with the law. After Shaoguan Gaoteng acquired the control of Liaoning Chengda, it indirectly controlled 54.67% of Chengda Bio's equity, triggering the 30% shareholding red line, so it is required to fulfill the mandatory offer obligation.

As for the "low-price" acquisition, Deng Yong believes that 25.51 yuan per share is the average price of the 30 days before the suspension. This is actually a defensive offer strategy adopted by Guangdong Minsheng Investment. The purpose is to send a signal to the market, hoping that small and medium shareholders will refuse to accept it, so as to naturally release the offer obligation after the offer ends.

CICC pointed out that the passive offer event does not affect the intrinsic value of Chengda Bio, and the landing of the vaccine pipeline will open the market value ceiling.

What is the impact?

According to Frost & Sullivan's data, with the development and listing of more vaccine products in the future, the global human vaccine market will grow from US$46 billion to US$83.1 billion from 2021 to 2025, with a compound annual growth rate of 16%.

Other data show that in 2023, the scale of my country's vaccine market (excluding the new crown vaccine) will reach 101.77 billion yuan. China Investment Industry Research Institute predicts that the scale of my country's vaccine market will reach 124.5 billion yuan in 2024 and 268.7 billion yuan in 2028, with an average annual compound growth rate of about 21.21% from 2024 to 2028.

In the field of vaccines, Chengda Bio has its own unique advantages: the market share of its listed product, human rabies vaccine, has been leading for more than ten years since 2008, and it is in the leading position in the field of human rabies vaccine; human Japanese encephalitis inactivated vaccine is the only Japanese encephalitis inactivated vaccine currently on sale in China.

Southwest Securities pointed out that in 2024, Chengda Bio occupied the largest share in the rabies vaccine (freeze-dried) market, and Chengda Bio accounted for 38% according to the batch issuance share (batch).

However, Chengda Bio's current main income and profits come from the production and sales of human rabies vaccine and Japanese encephalitis inactivated vaccine, and its product structure is relatively simple. With the increase in the number of approval numbers and batch issuances of domestic human rabies vaccines, competition in the human rabies vaccine market will intensify, which will in turn affect the company's market share and competitiveness, and have a certain impact on the company's performance.

In recent years, Chengda Bio's performance has also encountered certain difficulties. Data show that before Chengda Bio went public in 2021, its performance rose continuously in the three years from 2018 to 2020, with revenue rising from 1.391 billion yuan in 2018 to 1.996 billion yuan in 2020. After reaching a peak of 2.088 billion yuan in 2021, revenue continued to decline. In terms of net profit attributable to the parent, it increased from 620 million yuan in 2018 to 918 million yuan in 2020. It declined in the year of listing and continued until the first three quarters of 2024.

Biopharmaceuticals are an important sector of Liaoning Chengda, and the performance of Chengda Bio also affected Liaoning Chengda. According to the data, from 2022 to 2023, Liaoning Chengda's revenue has declined for two consecutive years, and its net profit attributable to the parent company has declined continuously from 2021 to 2023.

According to the official website of Guangdong Minsheng Investment, its key investment directions include: vaccine-related industrial chain, upstream pharmaceutical industrial chain, important resource products, specialized medical services, innovative technology platforms (such as new antibodies, cell gene therapy, synthetic biology), etc. Guangdong Minsheng Investment relies on relevant industrial resources to deepen industrial integration and upstream and downstream investment in the industrial chain.

Deng Yong believes that the shift from state-owned assets to private enterprises will have a certain impact on Chengda Bio. First of all, in terms of financial support, Guangdong Minsheng Investment, as the power behind Shaoguan Gaoteng, can provide Chengda Bio with more sufficient funds to help it increase its R&D investment; secondly, in terms of management experience, Guangdong Minsheng Investment has rich experience in multiple fields and can help Chengda Bio optimize its management structure and improve operational efficiency.

"At the same time, in terms of market resources, Guangdong Minsheng Investment's extensive investment layout can provide Chengda Bio with more cooperation opportunities and market channels. In addition, in terms of decision-making, the flexibility of decision-making will be improved after private holding." Deng Yong said.

There are also industry views that, in order to avoid competition in the same industry, Chengda Bio will play a role in integrating pharmaceutical and biological industry resources. As an important pharmaceutical and biological asset under Guangdong Minsheng Investment, Chengda Bio will receive key support.

Chengda Bio stated in the announcement that the company's management and operation team will not undergo major changes, will not have a substantial impact on the company's daily production and operation, and will not harm the interests of the company and the majority of investors, especially small and medium-sized shareholders. After this change of control, the company will continue to earnestly implement and promote the established development strategy, enhance core competitiveness, and continue to create value for the company's shareholders.

Deng Yong believes that at present, Chengda Bio emphasizes that the management team remains stable and will follow the established development strategy. However, in the long run, under the influence of Guangdong Minsheng Investment, it may use its resource advantages to accelerate the advancement of the R&D pipeline, such as accelerating the development and listing of new products such as human diploid rabies vaccine. It may also make changes in marketing, production management and other aspects to further enhance market competitiveness.