Jiuding Capital’s “5-running-fire” in Pesticides Enterprises
2010-08-20
Jiuding Capital recently invested a domestically-leading pesticide preparations enterprise, China’s second largest commercial crop pesticide manufacturing enterprise, Huizhou Sino-Quick Chemical Co., Ltd. (“Sino-Quick Chemical” for short).
In fact, Sino-Quick Chemical is the fifth pesticides enterprise invested by Jiuding Capital, followed by Huifeng Agrochemical, Tianyuan Biochemistry, Limin Chemical and Flag Chemical. Huifeng Agrochemical has passed the examination of the Issuance Examination Committee, and is about to be listed on SMEs board. Jiuding Capital shows its special preference to pesticides enterprises. Such investment strategy is not common in other PE firms.
Preference for pesticides enterprises
According to the introduction, approved by Huizhou Municipal Administration for Industry & Commerce in December 2002, Huizhou Sino-Quick Chemical Co., Ltd. is located in HZZK Hi-tech Industrial Development Zone, and is a Sino-foreign joint venture integrating development, production and sale of pesticide preparations, pesticide and fertilizer, agrochemicals and plant protection service. Through implementing active effective development strategy, Sino-Quick Chemical has enjoyed relatively-high market reputation, and has got developed rapidly. Currently, corporate comprehensive strength has ranked top in the industry in China.
In the investment of agriculture, Jiuding Capital showed its special preference and persistence to its “5-running-fire” in the pesticides enterprises.
In fact, the pesticides industry is not a high-growth market with the scale of tens of billions yuan. PE firm hardly shows any interest in such industry. However, Jiuding Capital has its unique view. Partner of Jiuding Capital Lei CAI thinks that, in terms of methodology, the investment sometimes needs reverse thinking. The sector that others don’t care may be very good investment opportunity.
For this reason, Jiuding Capital has performed the careful research into the pesticides industry, discovering that the modern agriculture production has very rigid demand on the pesticides, China enjoys unique status in the global pesticides division, domestic market exists some favorable factors such as concentration of landholdings, transfer of labor force, support of national policies, etc., the pattern of domestic pesticides industry dominated by traditional state-owned enterprises is changed gradually, and the industrial structure is extremely scattered, so there are many investment opportunities.
“There are nearly 3000 regular pesticides enterprises in China. Far less than 1% the enterprises are chosen.” Head of pesticides project team of Jiuding Capital Li Weijin said that Jiuding Capital’s team has visited almost all of domestic pesticides enterprises with the net profit of more than 20 million yuan.
Layout of industrial chain
International pesticides industry has 6 well-recognized giants: Dow AgroSciences, DuPont and Mahyco (the USA), BASF and Bayer (Germany) and Syngenta (Switzerland).
Li Weijin introduced: “Although there are some enterprises similar with such giants in scale, such enterprises should not be put on a par with them, because such giants control the two ends of the whole industrial chain: monopolizing R&D of all new compounds in the upstream market, and controlling nearly 85% global market shares in the downstream market.”
According to Jiuding Capital’s research, heavily-invested new pesticide development and terminal network construction in the short term exceed the development level of domestic enterprises, but to expand the industrial chain is still a key factor for the success of pesticides enterprises. So Jiuding Capital’s the basic requirement for the target pesticides enterprise is that it has built some outstanding competitive advantages in some variety or sector, and has certain features in the industrial chain, and the sustainable development ability.
Limin Chemical is such an enterprise. Under the circumstance of excess production capacity of herbicide and insecticide in the pesticides industry, focusing on the germicide, Limin Chemical has become China’s, even Asia’s largest manufacturer of agricultural germicide. Its products are well-received by many transnational corporations, and have been sold to the five continents. Among domestic enterprises, R&D and sales ability are more insufficient, compared with production ability. Flag Chemical is distinct in the industry. Flag Chemical, with the history of 5 years, has become the pesticides enterprise with the most quantity of registered active compounds. Most of the active compounds are some novel varieties registered in China exclusively. Tianyuan Biochemistry is a well-recognized marketing guru in the preparations industry, as well as an absolute bellwether in the rice market.
“If conditions are ripe, we will facilitate the cooperation between Jiuding Capital’s invested enterprises.” Lei CAI pointed out that, as far as Jiuding Capital’s industrial pattern is concerned, none of domestic pesticides enterprises can reach top level in R&D, production and sale, but Jiuding Capital can select the best ones in respective sectors. “Currently, Jiuding Capital’s pesticides enterprises cover active compound and preparations, and all the links ranging from synthesis pathway research to point-of-sale terminal.”
Actually, the integration of the pesticides industry has begun. Since the financial crisis, some listing companies such as Lier Chemical and NPS have made use of their advantages of capital to “ride on a horse to enclose.” Jiuding Capital estimated that, when some domestically excellent new-generation privately-owned pesticides enterprises enter the capital market, the magnitude and speed of future industrial integration will be increased further.
Li Weijin thought that “it is estimated that domestic active compound market will be partitioned by 20-30 large-sized enterprises with the scale of at least 2 billion yuan ten years later. In the preparations industry, the privately-owned enterprise with the sales volume of more than 1 billion yuan is absolutely not limited to NPS.”