I withdrew it again, 190000 investors are confused! Former Chinese medicine giant Kangmei Pharmaceutical applied for post cap removal supervision | Company | Giant
Although at a recent shareholder meeting, the current management of ST Kangmei announced that the company's internal control rectification had met the conditions for applying for a "cap removal" from regulators. Investors thought that the "cap removal" was just around the corner, but they did not expect that on the evening of June 13th, one month after planning, ST Kangmei voluntarily withdrew its application.
On the morning of June 14th, Kangmei Pharmaceutical quickly hit the limit down, closing at 2.19 yuan, a decrease of 4.78%, with a total market value of 30.362 billion yuan. There are various opinions among investors in the stock market regarding the reason why Kangmei Pharmaceutical withdrew its cap removal application. On the afternoon of the 14th, ST Kangmei sent a "Situation Explanation" to a reporter from First Financial News, stating that the company has met the requirements of the "hat removal" rule, and the revocation of the application is mainly due to the historical litigation that the company has not yet made a final judgment on, and the company's profitability still needs to be further restored and improved.
Kangmei Pharmaceutical, which was accused of "massive fraud" by ST, has been continuously rectifying its internal control deficiencies for over three years after "White Knight" and its current controlling shareholder Guangdong Shennong Enterprise Management Partnership entered the restructuring with huge funds. The current management has made great efforts to revive the company. However, in addition to these, Kangmei Pharmaceutical still faces numerous practical challenges. Firstly, it is plagued by lawsuits, secondly, its profitability still needs to be further restored, and thirdly, its internal business integration still needs to be clarified.
hand on the hedge
No one would have thought that the two loans taken by former controller Ma Xingtian during his tenure would burden the current Kangmei Pharmaceutical Industry with such a heavy burden.
"From a governance perspective, there may have been some non-standard and artificially manipulated issues in the past." At a recent shareholders' meeting, the management of Kangmei Pharmaceutical told First Financial reporters that after about three years of rectification, the new Kangmei Pharmaceutical has achieved good results in standardized governance and internal control rectification. Now, the internal control of the entire company has reached the conditions for applying to the exchange for a "cap removal", and the external audit agency also believes that the company is a normal enterprise.
The "historical litigation that has not yet been finally judged" referred to by Kangmei Pharmaceutical mainly refers to the litigation between Bohai International Trust Co., Ltd. and its former major shareholder Kangmei Industrial Investment Holdings Co., Ltd., as well as three subsidiaries of the listed company.
According to ST Kangmei's previous announcement, Kangmei Industry and Bohai Trust signed the Trust Loan Contract and Supplementary Agreement to the Trust Loan Contract on November 28 and December 5, 2018, respectively, with a total loan of 3.56 billion yuan. To guarantee the above-mentioned loan, Kangmei Industry and related parties provided guarantee measures and signed relevant agreements with Bohai Trust.
Later, during the performance of the loan contract, Kangmei Industry failed to fulfill all repayment obligations to Bohai Trust as agreed, and each guarantor also failed to fulfill their corresponding guarantee responsibilities. Bohai Trust listed Kangmei Industry, Kangmei Huatuo International Traditional Chinese Medicine City Co., Ltd., Bozhou New World Trade Co., Ltd., Kangmei Century Traditional Chinese Medicine Co., Ltd., Xu Dongjin and other fifteen individuals as defendants, requesting the defendant to repay the loan principal of 1.752 billion yuan, interest, penalty interest, etc. of 804 million yuan, and bear litigation costs and lawyer's fees.
Later Bohai Trust changed its lawsuit request, requesting the defendant to repay the loan principal of 2.82 billion yuan, interest, penalty interest, etc. of 1.049 billion yuan, and bear the litigation and legal costs. It requested to exercise the mortgage right on the real estate mortgaged by Kangmei Industry, Kangmei Traditional Chinese Medicine City, New World Trade, and Century National Medicine, and requested to exercise the pledge right on the equity held and pledged by Kangmei Industry and related parties.
Afterwards, ST Kangmei received a judgment from the Intermediate People's Court of Jieyang City, which ruled that the defendant Kangmei Industry should repay the outstanding loan principal of RMB 2.82 billion and some interest and penalty interest owed to the plaintiff Bohai Trust within ten days from the date of the judgment becoming legally effective; Bohai Trust has the right to convert the debts of the defendant Kangmei Industry determined by the judgment into real estate mortgaged by the defendant Kangmei Industry, Kangmei Traditional Chinese Medicine City, New World Trade, and Century National Medicine, or to receive priority compensation from the auction or sale price of the property. At the same time, it has the right to convert the equity held and pledged by the defendant Kangmei Industry and related parties into stock or receive priority compensation from the auction or sale price of the property.
"If you are not satisfied with this judgment, you may submit an appeal to the Jieyang Intermediate People's Court within 15 days from the date of service of the judgment and provide copies according to the number of opposing parties, and appeal to the Guangdong Provincial High People's Court.".
The three subsidiaries involved in this lawsuit are the core enterprises of Kangmei Pharmaceutical and important members of the traditional Chinese medicine trade sector, all located in Bozhou, Anhui, which is an important traditional Chinese medicine hub. Once this lawsuit takes effect, it will have an undeniable impact on Kangmei Pharmaceutical, which focuses on the entire traditional Chinese medicine industry chain. An insider close to ST Kangmei previously told First Financial reporters that it is clear that the management of Kangmei Pharmaceutical cannot accept this judgment result.
After receiving the first instance verdict mentioned above, ST Kangmei submitted an appeal within a week. "Kangmei Pharmaceutical received the above-mentioned first instance judgment from Jieyang Intermediate People's Court on September 1, 2022, and appealed to the court on September 8, 2022 within the prescribed time." ST Kangmei stated in the "Situation Explanation" that the second instance has already been heard, but the company has not yet received the second instance judgment.
In response to the Shanghai Stock Exchange's 2022 Regulatory Inquiry Letter, ST Kangmei stated that the Bohai Trust v. Company case involved a total amount of 3.376 billion yuan, involving New World Commerce, Kangmei Traditional Chinese Medicine City, and Century National Medicine. As the company only bears asset mortgage guarantee liability, not joint and several guarantee liability, based on the principle of prudence and the first instance judgment result, a total of 609 million yuan of expected liabilities for pending litigation have been provisioned within the book value of the mortgaged real estate of the aforementioned subsidiaries.
According to ST Kangmei's 2022 annual report, the company is currently involved in 113 pending litigation cases, including 95 passive litigation cases, with a total amount of approximately 5.132 billion yuan. The company has confirmed estimated liabilities of 981 million yuan for the year 2022.
On May 30, 2023, ST Kangmei issued a notice regarding the cumulative involvement of litigation, showing that the company has filed a total of 72 lawsuits, including loan contract disputes, construction project construction contract disputes, etc.
In addition, Kangmei Pharmaceutical's net profit attributable to shareholders of the listed company in 2022 was a loss of 2.689 billion yuan, and its profitability is yet to be further restored. The withdrawal of the "cap removal" application has caused some investors to worry about the future of this listed company.
However, Kangmei Pharmaceutical stated in the "Situation Explanation" that "the withdrawal of the company's application to revoke other risk warnings for its stocks does not affect the normal production and operation of the company, nor does it result in any delisting risk."
Profitability still needs to be improved
The last time a journalist from First Financial had direct contact with the management of ST Kangmei was at the 2022 shareholder meeting held at the company's Puning headquarters. At the shareholder meeting that day, investors were quite concerned about the stock price, market value, and development of ST Kangmei's traditional Chinese medicine industry.
Although the management of Kangmei Pharmaceutical has publicly claimed that "the company's standardized governance and internal control rectification have achieved good results, and external audit agencies also believe that the company is a normal enterprise, and its operating conditions are gradually improving." However, investors are more concerned about "immediate benefits." The stock price and market value are sluggish, and the performance in 2022 has declined. The main business of traditional Chinese medicine has not fully recovered. When will the cap removal application be restarted.
ST Kangmei's stock price has been maintained at around 2 yuan for a long time, with a market value of around 30 billion yuan. In 2022, ST Kangmei's revenue only slightly increased by 0.67%, reaching 4.18 billion yuan. Even after deducting revenue unrelated to its main business and revenue without commercial substance, the revenue only slightly increased by 2.60%, reaching 4.157 billion yuan. In the first quarter of 2023, Kangmei Pharmaceutical achieved a revenue of 1.144 billion yuan, a year-on-year increase of 22.5%, and a loss of 50.4086 million yuan.
As of the end of the first quarter of 2023, the total number of shareholders of ST Kangmei was 193000.
In response to investors, the management of Kangmei Pharmaceutical stated that for the current stage of the company, the main focus is still on internal strategy, business performance, and standardized governance, as well as the control of the entire subsidiary.
Kangmei is an enterprise in the entire traditional Chinese medicine industry chain. In its overall business model, it includes the cultivation of seeds and seedlings, cultivation of traditional Chinese medicine, production and manufacturing of traditional Chinese medicine decoction pieces, as well as trade and commercial distribution of traditional Chinese medicine in the circulation process, as well as retail chains.
In the early years, Kangmei Pharmaceutical independently constructed and acquired traditional Chinese medicine markets such as Anhui Bozhou Traditional Chinese Medicine City, Puning Traditional Chinese Medicine City, Gansu Western Traditional Chinese Medicine City, and Kangmei Xining Traditional Chinese Medicine City, achieving the layout of major traditional Chinese medicine city markets in China.
However, in the traditional Chinese medicine city sector, subsidiaries of Kangmei Pharmaceutical, such as Puning Traditional Chinese Medicine City and Kangmei Traditional Chinese Medicine City, continued to incur losses in 2021 and 2022.
According to ST Kangmei, Puning Traditional Chinese Medicine City's revenue in 2022 decreased by 82.80% year-on-year; Kangmei Traditional Chinese Medicine City's revenue in 2022 decreased by 43.04% year-on-year. And the impact of special factors is an important reason for its losses, among which: the special factor impact amount of Puning Traditional Chinese Medicine City in 2022 was 213 million yuan, accounting for 91.45% of its annual losses; The special factors affecting Kangmei Traditional Chinese Medicine City in 2022 amounted to 532 million yuan, accounting for 78.94% of its annual loss.
ST Kangmei stated that the traditional Chinese medicine city sector is a single business model mainly based on property asset management, with low risk resistance. Despite a significant decline in rental and sales business, it still needs to bear large fixed costs, making it difficult for enterprises to avoid losses.
According to ST Kangmei's plan, the future Traditional Chinese Medicine City sector will transform from a single rental and sales model to industrial operation, actively applying to the local government for wholesale and operation qualifications for bulk medicinal materials, and planning to carry out bulk purchase and sales of traditional Chinese medicinal materials and herbal medicine pieces.
"We are currently preparing to apply for the wholesale of medicinal materials, and have completed preliminary research and planning design. Pharmaceuticals and pharmaceutical companies both hope to obtain more convenient cooperation services for the purchase and sale of traditional Chinese medicine and traditional Chinese medicine decoction pieces." ST Kangmei stated in its response to the "Regulatory Inquiry Letter" that in the future, by combining the property management of the traditional Chinese medicine city with the operation and management of medicinal resources, we will gradually form the advantage of "dual wheel drive".
Regarding the arrangement after withdrawing the "hat removal" application, ST Kangmei replied to a reporter from First Financial that the company's management will actively exercise its litigation rights in accordance with the law and regulations, accelerate the resolution of historical litigation issues, safeguard the legitimate rights and interests of the company and all employees, continuously improve the level of business management, and enhance the company's profitability. "In the future, the company will choose to resubmit an application to revoke other risk warnings for the company's stocks based on communication with regulatory authorities."
