Why are Changshu new materials sold after they enter the production state? Sanaifu replies to the inquiry

Sanaifu (600636. SH) issued a reply announcement on the Shanghai Stock Exchange’s “Inquiry Letter on Information Disclosure of the Major Asset Restructuring Plan of Guoxin Culture Holding Co., Ltd.”.
1. The Shanghai Stock Exchange requires the company to analyze whether there is synergy between the supply and marketing relationship and the transaction amount between the new materials and the sales of Changshu new materials and new materials, and whether the new materials can operate independently after the sale of Changshu new materials, and whether they face significant adverse effects.
The company replied that one of the target assets to be sold is the sales company of fluorine chemical products. The business model is to purchase and sell fluorine chemical products required by customers from the market without production and processing. During the reporting period, the sales and purchase of new materials from Zhenfu New Materials in 2017 was 4986623.95 yuan, accounting for 3.28% of the operating cost of Zhenfu New Materials in 2017. There was no business transaction between Zhenfu New Materials and the sales of new materials from 2018 to January to July 2019. New material sales In 2017-2018, the main sales products were electrolytic nickel and ethylene glycol. In January-July 2019, the main sales products were propylene, polytetrafluorostyrene and core-spun yarn. From 2017 to January to July, 2019, the main products sold by Zhenfu New Materials are polyvinylidene fluoride (VDF) and trifluoroacetic acid. The two products do not overlap and the main customers do not overlap.
The target asset of Changshu New Material is a fluorine chemical production enterprise, which mainly produces fluororubber (FKM) and poly (perfluoroethylene propylene) concentrated dispersion (FEP). From January to July 2019, Polyvinylidene fluoride (VDF) is the raw material for the production of Changshu New Material. Changshu New Material purchased 7926633.51 yuan of polyvinylidene fluoride (VDF) from the new material, which accounts for 3.49% of the current operating income of the new material.
To sum up, the synergy between Zhenfu New Material Company and Changshu New Material and New Material Sales is small. During the reporting period, the amount of purchase or sales of Zhenfluorine new materials through the sale of Changshu new materials and new materials this time accounted for a relatively low proportion of its operating costs or operating revenues in the same period, and Zhenfluorine new materials have independent business systems such as purchase, production and sales. After the sale of Changshu new materials and new materials this time, Zhenfluorine new materials can maintain independent operation, This placement will not have a significant adverse impact on the production and operation of new fluoride materials.
2. The Shanghai Stock Exchange requires the company to analyze and explain whether the main consideration for the sale of related assets is conducive to enhancing the company’s sustainable operation ability in combination with the company’s subsequent main business development direction and the competitive pattern of the fluorine chemical industry
The company replied that after the end of this transaction, the company will focus on the development of the main business of culture and education, increase the investment in product research and development, market investment, expand the market share of products and enhance the competitive advantage of products based on the advantages of brand, technology research and development, channel and shareholder resources in the culture and education business. This sale of assets is mainly to consider the needs of the company’s main business development direction adjustment and strategic development, improve the company’s asset quality and financial situation, promote the transformation and upgrading of its own business, further optimize the company’s asset structure, and focus on the development of the main business of culture and education. Through this transaction, the listed company will significantly reduce the fluorine chemical business. The total amount of funds collected by the listed company and its subsidiaries will be about 44.1335 million yuan (the transaction price will not be less than 218.3741 million yuan, and the total amount of current accounts payable to the listed company and its subsidiaries from the target assets to be sold will be about 222.9609 million yuan as of July 31, 2019). The funds collected will support the development of the company’s core business, improve the company’s core competitiveness, and improve the company’s asset quality and financial situation, Promote the upgrading and transformation of its own business, eliminate the uncertainty risk of the future development of chemical business, and enhance the sustainable development of the company.
3. The Shanghai Stock Exchange requires the company to explain the main reason and rationality of the company’s sale of Changshu new materials after they enter the production state, in combination with the change trend of the price and gross profit rate of relevant products during the reporting period, the use of downstream products and the market competition pattern.
The company replied that the total investment estimate of the “Phase I project of fluorine-containing copolymer project” was 197.97 million yuan. Changguoyong (2015) No. 06661 plot was approved in April 2015. It was commenced in September 2016 and completed in June 2018. (Note: the intermediate handover refers to the interim handover of the project, which means that the construction unit has completed all construction contents on the process operation route, and the process route is fully connected, which can carry out system pressure test, water and electricity combined operation, etc.). Trial production began in December 2018. The main products of Changshu New Materials are PFEP concentrated dispersion (FEP) and fluororubber (FKM). There are three main FEP production processes: lotion polymerization, suspension polymerization and supercritical polymerization. The reaction of lotion polymerization is easy to control, but the product is unstable; Larger particles can be obtained by suspension polymerization. The reaction process is at normal temperature and low pressure, and the reaction rate is slow; Supercritical polymerization products have high purity and are environmentally friendly, but the reaction pressure is high and the equipment requirements are high. The production process of Changshu new materials is mainly lotion polymerization.
It is reasonable for Changshu new materials to be sold after they are put into production. The main reasons are as follows:
1. Based on the needs of the main business direction adjustment and strategic development of listed companies
With the mission of “building a first-class enterprise and helping the modernization of education”, listed companies focus on the investment, construction and operation services of education informatization, regional smart education, smart campus and smart classroom. Listed companies adhere to the enterprise orientation of serving the modernization of education, closely focus on the goals and tasks of the education informatization 2.0 action plan and the development trend of education informatization, fully implement the “three three three six strategy”, and strive to build an education informatization enterprise with the research ability supporting the overall development, the industrial chain integration ability with core competitiveness, and the national sales ability with strong channel resources and financial support, so as to make the company become a concept leader A new central enterprise with advanced technology, high-quality service and diversified layout for modern education services. The fluorine chemical business of Changshu New Materials is not in line with the main business development direction of the listed company in the future. This sale of Changshu New Materials is based on the needs of the company’s business development direction adjustment and strategic development.
2. The future profit of Changshu New Materials is uncertain
At the beginning of 2019, Changshu new materials began to produce and sell independently. Due to the new production, the productivity utilization rate of the production line was low and the output was unstable, and the improvement of the technological process and the proficiency of the workers still needed some time, which caused the unit production cost to be inversely linked with the market price. In the future, with the continuous expansion of the production scale of Changshu new materials and the continuous improvement of the stability of the production quality, the unit product cost of the product will decline, but the time required to achieve profit when it falls to the profit range is uncertain. If the future market price or raw material purchase price changes adversely, there will be greater uncertainty in the future profit of Changshu new materials.
3. Quickly withdraw funds and improve the company’s asset quality
After the sale of Changshu New Materials, the company will withdraw no less than 191.034 million yuan (this price is the base price for public listing transfer). The withdrawal will continue to support the development of core businesses of listed companies, optimize the company’s asset-liability structure and improve the company’s asset quality.
To sum up, the company’s sale of Changshu new materials is a comprehensive consideration of the actual operation of Changshu new materials, and the company’s main business development strategic direction adjustment. It is reasonable to support the development of the company’s core business, improve the company’s core competitiveness, improve the company’s asset quality and financial situation, promote the upgrading and transformation of its own business, eliminate the uncertainty risk of the future development of chemical business, and enhance the company’s ability to continue operation by selling Changshu New Materials.