Ten-fold ROI for JD Capital: A Capital Story of Limin Chemical
Source: Agrigoods Herald
Recently, Limin Chemical, a listed company (002734) engaging in manufacturing pesticide raw materials and formulation, revealed its performance report of the first three quarters of 2016. The report indicates RMB 789 million of revenue in the first half of the year, a year-on-year increase of 89.54%, and 69.86 million yuan of net income, up by 93.85% over last year.
Listed in 2015, Limin Chemical now has a market value of around RMB 6 billion, which is indeed praiseworthy considering the decelerating economic growth and fierce competition in the pesticide market. Limin’s capacity of featured products now ranks the first in China.
As an investor of Limin for years, JD Capital has received an over 10-fold return on its investment, making the company one of the multiple tenbaggers in JD Capital’s historical investment portfolios. Limin’s upward development evidently manifests the driving force of JD Capital.
Stock investment: JD Capital acts decisively at the market low point to invest in the pesticide blue-chip
Limin Chemical mainly produces pesticide raw materials and formulation for agricultural use, most of which are export-oriented. From 2001 to 2015, China has seen its pesticide production soar from 782,000 tons to 3.744 million tons, overtaking the US to become the world’s largest pesticide producer in 2006. In the meantime, however, the domestic pesticide market has actually undergone ups and downs. In 2009, in particular, there was an obvious retracement after a prevailing trend in the overall revenue. At such a low market point, it was a hard decision for PE firms to be a stockholder of a pesticide enterprise.
Talking about the procurement of Limin shares, the responsible person from JD Capital mentioned: “Although the pesticide industry was relatively sluggish around 2009, and there was no telling how long the depression would last, we were still confident. For one thing, the steadily growing grain demands entail rigid demands for pesticides. For another, the upgraded household grain consumption changes the cropping structure. Since these two factors propel pesticide demands, we were optimistic about the future market for Limin Chemical despite the low ebb.”
After the in-depth analysis of the market segment Limin engaged in and the companies’ products, JD Capital invested RMB 53.4 million in Limin in 2009, equivalent to 19.4% of its total shares, and became Limin’s major strategic shareholder. The responsible person also recalled that in addition to the optimistic outlook of the market segment, JD Capital also noticed the market potential in Limin’s mancozeb products, which could become the trump card of Limin, or even the whole industry. And this is also another vital reason why JD Capital decided to go against the downward trend and invest in Limin Chemical.
Looking back, we can see that the overall revenue development of the pesticide market has verified JD Capital’s judgment of the industry at that time: The sales revenue of China’s pesticide industry has continued to grow since JD Capital’s investment in Limin several years ago.
M&A strategy: Limin cooperates with JD Capital to establish a M&A fund for industrial resources integration
After years of cooperation, Limin Chemical joined hands with JD Capital to set up a 1 billion-yuan M&A fund in 2014. With this M&A platform, both sides are hoping to step up industrial integration and to seek at a large scale investments and M&A targets significant to Limin.
It’s learnt that the fund is mainly geared to domestic and international enterprises with channel and brand advantages in fields of pesticides, seeds, fertilizers, and agricultural machinery, covering investments in agricultural materials, relevant ecosystem, and so on.
The responsible person of the post-investment management team pointed out: “With the massive overall production, China seems to have sufficient pesticides. There are around 34,000 products registered by 2,232 Chinese pesticide companies in 2015. But actually, the entire industry is faced with a problem of increasingly serious homogeneity competition, which worsens overcapacity. As a result, many products have already become unprofitable.”
Against this backdrop, JD Capital is recommending M&A targets with R&D advantages in pesticides to Limin, in an effort to bring not only synergy for the operation of Limin and M&A targets, but also improvement in their management, cost efficiency, market competitiveness, and other aspects.
The responsible person of the Limin project from JD Capital said: “We hope that, with the support from JD Capital, Limin can enhance its own investment capability, accelerate market expansion, and enjoy investment returns from the booming M&A market. In this way, we are able to establish a mutually beneficial relationship.”
Expansion overseas: Seek for M&A targets abroad and turn into a world-class enterprise
In recent years, Limin has adopted the export-oriented economy as its new growth point and continued to step up its business cooperation with international companies. Limin has been DuPont’s supplier for a decade, and is expanding its cooperation with cross-border enterprises, Dow Chemical, for instance, year by year.
Supported by the post-investment management team of JD Capital, Limin kicked off a private placement project in October 2015, aiming to raise 760 million yuan for new projects such as the production of 5,000 tons of propineb and 500 tons of azoxystrobin. The private placement plan was already reviewed and approved by the China Securities Regulatory Commission (CSRC) in July 2016.
According to Limin Chemical, propineb, upgraded from mancozeb, has better bactericidal and protective performance; and azoxystrobin, as the best-selling fungicide in the world, enjoys a great market space. The introduction of new products and expansion of production capacity in the future will also further enhance Limin’s corporate operating performance. In this way, Limin Chemical will become a world-class enterprise in terms of product quality and yield.
The responsible person of the post-investment management team pointed out: “The mancozeb market will grow mainly on basis of overseas emerging markets. Therefore, Limin is now actively deploying its market internationally. At the same time, JD Capital is also leveraging its overseas business system to support Limin in looking for suitable M&A targets, with an aim to help Limin expand its Australian and South American markets through M&A.”
Future deployment: Implement “Bellwether Plan” to fully upgrade post-investment management
As Sage Xuncius said, “With a lusty horse, even the one unable to walk fast can travel for miles; with a quick boat, even the one unable to swim can cross the sea. The wise are no different from others, except that they are adept at leveraging tools.”
It is also true of corporate development. In the development of all the leading enterprises in the world, M&As have become an indispensable tool to expand their market share and market value. M&As wisely leveraging the capital market can realize channel expansion and brand sharing through large-scale consolidation, and therefore are an effective way for rapid and low-cost expansion.
As Chinese economy enters the new normal featuring idle capacity and slow growth, JD Capital acts as a trailblazer to usher into a M&A investment age led by PE. JD Capital initiated the “Bellwether Plan” this year, striving to become the shareholder of the distinctly advantageous bellwethers or bellwethers-to-be in various industries. In this way, JD Capital tries to facilitate these leading companies to constantly finance in China’s capital market, so as to enlarge their market share through horizontal M&As or to enhance their bargaining power through vertical M&As along the industry chain. The plan also helps these companies seize opportunities to realize international operation through cross-border M&As, and flexibly utilize tools such as internet to further enhance their core competitiveness. Ultimately, these target companies, with their market value jumping from a billion-yuan level to a 10-billion-yuan level, will emerge as veritable industrial leaders in China, and even the world at large.
Through the “Bellwether Plan”, JD Capital endeavors to provide partner enterprises with systematic solutions and suggestions for their M&As and integration strategies, and Limin Chemical is exactly an undertaker and practitioner of the plan in the pesticide industry. In order to implement the “Bellwether Plan” across the board, the post-investment management of JD Capital has also upgraded from the original phrase 1.0 to phrase 2.0.
The responsible person of the post-investment management team explained: “Post-investment phrase 1.0 of traditional PE firms mainly involves tracking corporate performance, propelling listing progress, conducting exit management, and performing other regular activities. In contrast, the totally upgraded phrase 2.0 proposed by JD Capital provides all-round services focusing on external financing and M&A investment.”
You Yiyang, Vice President of JD Capital, once stated publicly: “JD Capital has been dedicated to discovering the pain points in corporate development, and assisting companies to become leaders in market segments with its investment management experience and professional judgment. JD Capital will also give reasonable returns to investors. After years of exploration, it finally found the key route to forge a business empire – the integration of stock investment, M&A, and future deployment.”