Leading traditional Chinese medicine company Yunnan Baiyao (000538) has announced a major acquisition initiative.

According to an announcement released by Yunnan Baiyao on August 16, the company's wholly-owned subsidiary, Yunnan Baiyao Group Traditional Chinese Medicine Resources Co., Ltd. (hereinafter referred to as "TCM Resources Company"), will acquire 100% equity of Anguo Juyaotang Pharmaceutical Co., Ltd. (hereinafter referred to as "Juyaotang") through cash payment, with a total equity transfer consideration of 660 million yuan.

Specifically, TCM Resources Company has signed an "Equity Transfer Agreement" with Juyaotang's current shareholders Ma Xinhong, Ma Zhanjiang, Zhang Shuang, Shi Yuexin, and Shi Guang. According to the agreement, the transfer price for Ma Xinhong's 35% stake in Juyaotang is 231 million yuan, Ma Zhanjiang's 20% stake is 132 million yuan, Zhang Shuang's 17% stake is 112 million yuan, Shi Yuexin's 14% stake is 92.4 million yuan, and Shi Guang's 14% stake is 92.4 million yuan.

According to available information, Juyaotang is a company specializing in the production and sales of traditional Chinese medicine decoction pieces, toxic traditional Chinese medicine decoction pieces, direct oral traditional Chinese medicine decoction pieces, and formula granules, with sustained and stable profitability. Juyaotang's core business covers traditional Chinese medicine decoction piece processing and formula granule research and production, possessing 1,567 decoction piece varieties (over 4,000 specifications), making it one of the companies with the most comprehensive product categories in the decoction piece industry. The company has 240 national standard registered formula granule varieties.

Notably, Juyaotang's sales regions are primarily in northern China, complementing Yunnan Baiyao's current coverage areas.

Yunnan Baiyao stated that this transaction will help achieve the company's strategic goal of expanding its traditional Chinese medicine resources business to markets outside the province and establishing a national presence. Additionally, Juyaotang's rich traditional Chinese medicine formula granule product line and comprehensive decoction piece production capabilities can effectively supplement the company's product pipeline and enhance industry competitiveness. Juyaotang's mature online sales channels and extensive B2B customer resources have significant strategic synergy value for the company, capable of improving the collaborative efficiency of Yunnan Baiyao's traditional Chinese medicine supply chain. Furthermore, it can steadily drive the company's revenue and profit growth.

Based on income approach valuation, as of March 31, the market value of Juyaotang's total shareholders' equity at the valuation reference date was 679 million yuan, representing an appreciation rate of 111.47%.

Additionally, Juyaotang has a relatively high asset-liability ratio. Financial data shows that as of March 31, Juyaotang's total assets were approximately 747 million yuan, total liabilities were approximately 426 million yuan, with an asset-liability ratio of approximately 57.02%.

It's worth noting that this transaction includes performance commitments, but the promised net profits for the next three years are all lower than 2024 levels.

Financial data shows that in 2024, Juyaotang achieved operating revenue of approximately 632 million yuan and net profit of approximately 69.33 million yuan. In the first quarter of this year, Juyaotang achieved operating revenue of approximately 140 million yuan and net profit of approximately 11.49 million yuan.

Juyaotang's current shareholders have agreed to make commitments regarding the audited net profit and main business revenue amounts achieved by Juyaotang from January 1, 2025, to December 31, 2027, and to compensate TCM Resources Company if Juyaotang fails to achieve the promised net profit or main business revenue amounts.

Specifically, the promised net profits for 2025-2027 are approximately 66 million yuan, 59.7 million yuan, and 63.9 million yuan respectively; the promised operating revenues are approximately 624 million yuan, 616 million yuan, and 666 million yuan respectively. It can be seen that the promised net profits are all lower than the target company's 2024 net profit level.

Investment advisor Qu Fang from Wanlian Securities stated that performance commitments in listed company acquisitions typically consider several aspects: first, historical performance, with performance commitments based on the target company's financial and operating reports from recent years. Second, using the present value of earnings method to estimate performance growth over the next several years. However, it's necessary to consider that this valuation method faces difficulties in predicting future asset return rates. Additionally, industry competitive conditions and industry cyclicality will affect the target company's performance commitments. Investment and financing expert Xu Xiaoheng noted that if performance commitments are significantly lower than the target company's actual net profit level, they may fail to effectively promote improvements in the target company's operating performance.

Regarding company-related questions, attempts to contact Yunnan Baiyao's investor relations office were unsuccessful as no one answered the phone.