Jiuding Capital Invests 80 Million Yuan in Guangxi Tianyuan Biochemical

2009-03-02

Hope in fields is the reflection of the hot VC investment among agricultural sectors.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Blue Ridge Capital and KPCB invested 30 million yuan in Jiangxi Tianren Ecology in the middle of last year. What’s more, Xinjiang Condy Agri-Genetics Co., Ltd., the largest seed company in Sinkiang, acquired 65.88 million yuan of venture capital in January.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In February 2009, Jiuding Capital invested 80 million yuan in Guangxi Tianyuan Biochemical Co., Ltd., the largest pesticide company in Southwest China.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Before that, Jiuding Capital has invested 30 million yuan and 70 million yuan in Qingdao Sanchuan Juice Co., Ltd. and Jiangsu Huifeng Agrochemical Co., Ltd. (the largest producer of prochloraz pesticide in Asia) respectively.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “Although we have invested in three agriculture-related companies, it doesn’t mean we only focus on agriculture.” Ren Yifei, Deputy Director of Investment Department of Jiuding Capital, told reporters.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

There are lots of investment chances in the agricultural sector. Hence, Jiuding Capital puts 2 billion yuan in above three projects, accounting for 30% of the numbers of its total projects.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Ren Hongwei, Secretary of the Board of Tianyuan, told reporters that it’s not the right time to interview President Li Weiguo during such a sensitive period caused by some change of shareholders.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Pesticide’s Window Period0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Agricultural investment can be dated back to the global food crisis.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Mentioned in Inventories of Agricultural Investment Chances in China released by ZeroIPOGroup in November 2008, the investment amount has been increased from 6.4 million US dollars in 2002 to 48 million US dollars in 2007 and 23 million US dollars in the first half of 2008.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Above-mentioned enterprises mainly focus on pre-production and after-production stages. Pre-production mostly includes seeds, fertilizers and machines and after-production includes machine processing. The businesses of Huifeng and Tianyuan are mainly concentrated on pre-production.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

How large is the pesticide market in China?0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

According to figures from an analyst, the revenue of China’s pesticide industry was 108.8 billion yuan by November 2008, a year-on-year increase of 37% and the profits of 10.5 billion yuan, an increase of 119%.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

As to pharmaceutical market, although there are no specific figures, the total revenue is estimated within 35-50 billion yuan, among which, the market revenue of paddy pesticides is approximate 20 billion yuan.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Jiuding Capital was seeking for other suitable companies after investing in Huifeng in last June.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Then, Tianyuan, a company specialized in paddy pesticide markets, was eyed on by Jiuding Capital.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Jiuding Capital successfully invested in Tianyuan in the third quarter last year, which can be taken as an industrial case for other investors. “We seek potential enterprises by their ranks.” 0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In pharmaceutical sector, NPS is the biggest listed company, next by Guangxi Tianyuan Biochemical Co., Ltd., Hailer Pesticides and Chemical Group and Jiangxi Zhengbang Chemical Co., Ltd.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “Besides NPS, we have contacted all other companies,” said Ren Yifei, “but only Tianyuan can meet our standards of investment returns and has the intention to cooperate with us. 0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Tianyuan, a larger pesticide company next to NPS, reached sales revenue of 800 million in 2008, very close to that of NPS’s 1 billion yuan.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Sales capacity is very important for pesticide companies. Tianyuan’s sales network has been expansible, which attracts us a lot.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Tianyuan sells products through rural capital services, rural capital stations and private channels like individuals. The sellers’ incomes on above platforms are increase by 30% and we will certainly earn more,” Said Ren Yifei.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Jiuding Capital began to investigate Tianyuan after contacting through a friend. It’s known that the PE ratio is within 6~7 times. “The investment price is not high and moderate,” Zhongyi ZHAO told reporters.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

When Jiuding Capital contacted with Tianyuan, some institutions also showed their interest. The reason why we get the project is that both of the two companies have similar philosophy and Jiuding Capital is very effective in decision-making and fund transferring,” he said.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

He also disclosed that 80 million yuan would be used to purchase pharmaceuticals, perfect sales networks and acquire similar enterprises.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Tianyuan to Catch up with Leading Enterprises0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Ren Hongwei, Tianyuan’s Secretary of the Board, told reporters that the capital invested in Tianyuan will help them narrow the gap with industrial leading enterprise NPS.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Actually, Ren Hongwei, Ren Yifei and Zhongyi ZHAO subconsciously compare other pesticide companies with NPS.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In NPS’s Prospectus of 2008, its market share was 1.46%. After expansion and merging, the number is estimated to be 2.5%, and that of Tianyuan is 2%.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

However, the two companies position differently: Tianyuan has focused on paddy markets and become China’s biggest paddy pesticide manufacture; NPS mainly focuses on commercial crops. The former mainly specializes in field crops and the varieties are less than that of NPS.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Tianyuan’s products have been involved in basic fields of pesticide pharmaceuticals. To sum up, Tianyuan’s product structure is as follows: 70% of total products are pesticides for field crops, 70% of the field crop pesticide for paddies, and 70% of paddies insecticides.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

NPS has reached a growth rate exceeding 50% in three consecutive years after listed in Shenzhen Small & Medium Enterprise Board in 2008, while Tianyuan was increased rapidly, too. In 2001, the sales of Taiyuan were only 25% of NPS, but it reached almost 80% in 2008, a very rapid increase.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

The market shares of the two companies will be further enlarged, because a series of policies about forbidden high-toxic pesticides, business approval, extension approval, production permit and product registration have been issued by Chinese government since 2007 to limit the survival conditions of small and medium pharmaceutical enterprises without any licenses.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Especially, the increase of the registration fees from previous thousands of yuan to current 500,000-600,000 yuan makes the sales of single products be increased significantly, which is very difficult for those SMEs to achieve.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

According to statistics from ChinaCCM.com, more than 4,000 companies are capable of manufacturing pesticides, but only 2,200 have the three agricultural certificates, that is, Production License of Pesticide or Approval Documents, Pesticide Standard and Pesticide Registration Certificate. The market share of those seceded companies had been occupied by industrial top-ranked companies.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In future, the market share of the top 20 will remain at approximately 40%,” an analyst who focused on pesticide industry told the reporter.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Jiuding Capital also analyzed that the amounts of pharmaceuticals were never changed a lot in a short time and the demand on pesticides was fluctuated slightly. The fast increase of Tianyuan and NPS was caused by the structural adjustment, rather than the growth of whole industry.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Besides the two companies, a few companies also can achieve a 20%~30% of increase,” said Ren Yifei. Impacted by Chinese policies, the leading pesticide enterprises will have more chances than the SMEs.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

After the industrial thresholds were highly improved, Tianyuan has begun to merger other companies for acquiring their agricultural certificates and fields, reducing competitions and sharing their brands, channels and background services. Tianyuan has acquired some small-sized pesticide manufacturers and research centers in Jiangxi, Henan, Tianjin, Guizhou, and so on. Previously, the production process of pesticide pharmaceuticals was not complex and the required capital amount was low, which brought chances for SMEs without certificates. However, the increase of registration fee and the prohibition of high-toxic pesticide limit their development and the industry’s window period appears.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

The pesticide consumption per unit area in China is about 8.7 US dollars/hectares, approximately equal to 1/4 of the USA, 1/7 of Korea, 1/15 of France and 1/18 of Japan, so there is a still greater development space.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Analysts pointed out that the pharmaceutical companies can be stronger based on complete sales networks, effective deliveries and fund flows, and capital and technical support for downstream dealers.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In addition, the price fluctuation of upstream drugs of pharmaceutical companies can incur risks.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

The proportion of NPS’s primary pesticide chemicals in its main business cost was 55.08%, 56.05% and 54.29% in 2005-2007.In the Prospectus, it’s mentioned that the price rise of primary chemicals in 2005 lead to a lower margin, but the drop of the price in 2006 and 2007 achieved a higher margin.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

It’s also pointed out that pharmaceutical companies can avoid some losses by rising price due to the lower bargaining ability of peasants and purchasing primary chemicals in slack season.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Who We Are?0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Jiuding Capital Co., Ltd., founded in 2007, was still unknown in spite of investing 5 projects in that year.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

It began to be widely noted in 2008 after investing 6 projects worth tens of millions yuan, including Gold Cup Electric, Sanchuan Juice, Henan Billions Chemicals, Linoya Electronic and Tianyuan Biochemical.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

With a staff of 20, Jiuding Capital is in possession of five-phased funds totaling 2 billion yuan, and has been engaged in Pre-IPO and long-term investment.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “When investing, safety and profit are what we focus on,” said Zhongyi ZHAO.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

The 10 investment projects have very stable profitability, although growth is not very fast.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

To some extent, this is because the field is the industry closely related to the life of human beings, including foods, drugs (pesticides), cosmetics, restaurants and retails and competitive recurrent product industries.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Taking Henan Billions Chemicals for example, it is a recurrent industry with low profits. The reason we invest in it is that it survived until the industry was in deep recession. As an exported-based company, it can still achieve a profit of more than 30 million yuan although the external environment was not good.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “The company will earn more when the market rebound periodically,” said Ren Yifei.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

For Tianyuan, we think it is a high-growth company.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Jiuding Capital decides to invest in agricultural companies for several reasons:0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

1. Agricultural market is very huge and has spaces to grow and integrate.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

2. The agricultural market has been controlled by state-owned enterprises before, but now it has changed. Small private enterprises could develop fast after being funded.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

3. The rigid demands of most agricultural products ensure those enterprises un-impacted. Besides, most of its team members lived in rural areas, so they intend to contribute to agriculture.0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司


0qo九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

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