October 20, 2022

 

Zhenghong: What lies ahead for Chinese feed company after 25 years of stagnancy?

Listed on the Shenzhen Stock Exchange on March 18, 1997, Zhenghong Technology was the first feed company in China to be listed in the domestic feed industry.

 

The company was able to go public early as it is a state-owned holding company. However, this status led to Zhenghong's negligible development for the past 25 years. And, unlike its counterparts that saw exponential growth, Zhenghong Technology's feed output in 2021 was only about 362,000 tonnes, lower than what it produced 20 years ago. In that year, there were nearly 40 domestic feed companies with an annual output of one million tonnes.

 

Last June, Zhenghong announced that Guansheng Investment and its subsidiary, Guansheng Agriculture, will own 34.72% of the total share capital of the company, thus becoming the controlling shareholders of Zhenghong.

 

Zhenghong believes that, with this move, Guansheng Investment can use its logistics and trade resources to expand procurement channels. This means Guansheng could help Zhenghong strengthen its feed business.

 

However, an analysis of Guansheng Investment's financial situation revealed that it lacks sufficient resources. As of September 30, 2021, its net asset was ¥5 billion, but its asset-liability ratio was at 61.70%. With an income of nearly ¥9.3 billion (US$1.4 billion), the net profit attributable to the parent company was only over ¥100 million (US$14.6 million).

 

Zhenghong's shareholding structure shows that Guansheng Investment holds 80% of the shares while Juntai Holdings holds 20% of the shares. Although there are many companies related to agriculture, animal husbandry and biotechnology under Juntai Holdings, the registered capital of these companies is limited to ¥100 million or less. Hence, Juntai Holdings is expected to be a dormant shareholder.

 

What then is the direction of Zhenghong going forward?

 

Judging from Guansheng’s strengths and resources, Zhenghong would have to exploit its advantage, in terms of location, at Yueyang Port to develop grain transportation, warehousing and processing businesses, which would support its feed business. Consequently, one can expect Guansheng to remain focused on the grain processing trade.

 

As of now, Zhenghong Technology has a total share capital of 266.63 million shares and a net asset of ¥1.16 (US$0.17) per share. Its stock price is ¥5.97 (US$0.87), with a total market value of about ¥1.592 billion (US$233.6 million).

- David Lin, eFeedLink