Blood Product Industry Boom Continues with Frequent Mergers

Blood products are considered scarce resources, maintaining a high level of prosperity in a state of tight supply and demand balance. The performance of related listed companies in the first half of 2024 has achieved rapid growth, once again indicating the continuation of the industry's high prosperity. In addition, the industry also shows an accelerated trend of integration, with frequent mergers and acquisitions, and the concentration is expected to continue to increase.

At present, there are six listed companies in the blood product industry on the A-share market, namely Tiantan Biological, Hualan Biological, Shanghai RAAS, Pailing Biological, Boya Biological, and Weiguang Biological.

Among them, Tiantan Biological and Pailing Biological have released their performance for the first half of 2024, with both achieving a net profit increase of more than 29%, and the performance has continued to grow rapidly. At the same time, Boya Biological in the industry, although it has not yet released its performance forecast, recently announced that it will acquire a blood product company for 1.8 billion yuan, further accelerating industry integration.

Continuous growth in performance

Pailing Biological released its semi-annual performance forecast for 2024 on July 11, expecting to achieve a net profit of 315 million to 344 million yuan, a year-on-year increase of 120% to 140%, and a net profit of 281 million to 313 million yuan, a year-on-year increase of 170% to 200%. Before that, from 2021 to 2023, its net profit increased by 61.43%, 99.39%, and 9.08% year-on-year, respectively.

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Regarding the growth in performance, Pailing Biological explained in its performance forecast that the market demand for blood products is booming, the collection of raw plasma has increased year-on-year, the number of sellable products and sales volume of the company have increased, and the main business income has increased compared to the same period last year. Everbright Securities research report stated that the high prosperity of blood products continues, especially the terminal of intravenous immunoglobulin (IVIG) is in a tight balance, with overall supply not meeting demand.

In 2023, Pailing Biological's annual plasma collection exceeded 1,200 tons, ranking among the first echelon of domestic blood product industry with thousands of tons. Currently, the company has a total of 38 plasma stations, including 19 single plasma collection stations in Guangdong Shuanglin and 19 single plasma collection stations in Paisifike. Everbright Securities believes that in 2024, the company's annual plasma collection is expected to exceed 1,400 tons, achieving stable and rapid growth.

In terms of products, Guangdong Shuanglin currently has 3 major categories and 8 varieties, while Paisifike has 3 major categories and 9 varieties, with a total of 11 varieties. The number of products under research and development is more than 10, and the number of products will continue to increase in the future. Everbright Securities believes that with the continuous increase in the number of blood product varieties and the upgrading of products such as IVIG, Pailing Biological's comprehensive plasma utilization rate is expected to continue to increase, laying a solid foundation for long-term growth.

Tiantan Biological released its semi-annual performance report for 2024 on July 13, with the company achieving a business income of 2.841 billion yuan, a year-on-year increase of 5.59%, a net profit of 726 million yuan, a year-on-year increase of 28.12%, and a net profit of 724 million yuan, a year-on-year increase of 29.43%. Before that, from 2021 to 2023, Tiantan Biological's net profit increased by 21.12%, 12.93%, and 29.35% year-on-year, respectively.

Regarding the growth in performance, Tiantan Biological explained in its performance report that it was mainly due to factors such as product prices and cost control, which brought about an increase in sales income and an increase in profit margins. Relying on the advantages of the central enterprise platform, Tiantan Biological obtained the plasma collection permit for 16 newly established plasma stations in 2023, and the number of plasma stations in operation at the end of the period reached 76. As of March 2024, the number of operating single plasma collection stations reached 80, an increase of 4 compared to 2023. With the gradual operation of newly established plasma stations, the company's total plasma collection will continue to grow. At the same time, in 2023, the fourth-generation high-purity IVIG prepared by the subsidiary Chengdu Rongsheng by chromatography process was the first to be approved for marketing in China, and Chengdu Rongsheng's recombinant human coagulation factor VIII for injection obtained marketing approval, further enriching the product matrix and bringing new performance growth for the company in 2024.Tiantan Biological's financial budget report for 2024 indicates that the company's operational target for the year is expected to achieve a revenue of 6.126 billion yuan, marking an 18% year-over-year growth rate, with a net profit of 1.791 billion yuan, representing a 19% year-over-year increase. Galaxy Securities, calculating based on Tiantan Biological's 74% stake in Chengdu Rongsheng, estimates that Tiantan Biological's attributable net profit to its parent company for 2024 will be approximately 1.33 billion yuan, compared to 1.11 billion yuan in 2023.

The primary logic behind the high growth of both companies is the robust demand coupled with a supply shortage.

A research report from Shanxi Securities states that there is a significant gap between China's per capita usage and variety of blood products compared to developed countries. International giants can extract over 20 types from plasma, while domestic varieties can extract at most 14 types. China's per capita usage of albumin is less than one-fifth of that in the United States, Canada, and Japan, immunoglobulin is less than one-fourth, and coagulation factors are less than one-fiftieth.

The domestic demand for plasma has already exceeded 16,000 tons per year, while in 2022, domestic single-plasma collection stations collected approximately 10,181 tons of plasma, indicating a substantial gap in plasma supply. During the "14th Five-Year Plan," provinces have increased the establishment of new single-plasma collection stations, with over 40 new operational plasma stations added in China from 2021 to the first half of 2023, leading to a continuous increase in plasma collection and potentially driving the volume of downstream plasma products.

Mergers and Acquisitions Accelerate

In addition to organic growth, external restructuring is another very important way for blood product companies to grow. Especially since 2023, the pace of industry consolidation has noticeably accelerated, further increasing industry concentration.

In March 2023, Shengbang Yinghao resolved to sign agreements such as the "Share Transfer Agreement" with Zhejiang Min Tou Tianhong and Zhejiang Min Tou, intending to acquire control of Pailing Biological through the transfer of shares and acceptance of entrusted voting rights. The total transaction price for the share transfer is approximately 3.844 billion yuan. The background of Shengbang Yinghao's ultimate shareholders is the state-owned Shaanxi Coal Chemical Group, making Pailing Biological one of the listed companies under Shaanxi state-owned assets.

In June 2023, Weiguang Biological's controlling shareholder, Guangming State-owned Assets Bureau, established a joint venture with China National Biotec Group (CNBG), with respective shareholding ratios of 49% and 51%. After the establishment of the joint venture, Guangming State-owned Assets Bureau transferred 79.947 million shares of Weiguang Biological to the joint venture without compensation, accounting for 35.25% of the total share capital of the listed company.

After the transfer, CNBG controls 42.5% of Weiguang Biological's shares through the joint venture and Wuhan Institute of Biological Products Co., Ltd., and the actual controller of Weiguang Biological will change from Guangming State-owned Assets Bureau to China National Pharmaceutical Group Corporation.

At the end of December 2023, Haier Group, through its subsidiary Haiying Kang (Qingdao) Medical Technology Co., Ltd., acquired a 20% stake in Shanghai RAAS Blood Products Co., Ltd. for 12.5 billion yuan and obtained 26.58% of the voting rights through a voting rights entrustment, becoming the actual controller of Shanghai RAAS. In June 2024, the transaction was officially completed and the transfer of shares was finalized.Following the aforementioned transactions, the restructuring within the blood product industry did not come to a halt; however, the main player in this transaction has shifted to Boya Bio, a subsidiary of China Resources Group.

On July 17th, Boya Bio announced that it had acquired 100% of the equity of Green Cross (Hong Kong) held by GC, Synaptic, and individuals, totaling 18.2 billion yuan of its own funds, thereby indirectly acquiring the domestic blood product entity Green Cross (China).

Green Cross (China) focuses on the research and development, production, and sales of blood products, with four plasma stations currently in operation, a plasma collection volume of 104 tons in 2023, and a compound annual growth rate of plasma collection volume of 13% from 2017 to 2023. At the same time, it distributes imported albumin, recombinant factor VIII, and medical beauty products in the Chinese region through Anhui Green Lake (a sales platform company).

Financially, the target assets are still in a loss-making state. The acquisition announcement shows that from 2021 to 2022 and for the period of January to September 2023, Green Cross (Hong Kong)'s operating income was 404 million yuan, 233 million yuan, and 239 million yuan, respectively, with net profits of 22.42 million yuan, -23.27 million yuan, and -12.12 million yuan.

Why would Boya Bio acquire a loss-making blood product company? The primary reason behind this is the scarcity of blood product resources.

For the blood product industry, the state has not approved any new production enterprises since May 2001 and has implemented a total quantity control on production enterprises. Currently, there are less than 30 blood product production enterprises operating normally in the country, with a few enterprises holding multiple production licenses. The industry has high barriers, and the production enterprise license resources are very scarce. Green Cross (China) is a blood product production enterprise established by GC in China through Green Cross (Hong Kong) and is a scarce target resource.

After this transaction, Boya Bio will fully control a blood product production enterprise, adding one more production license, four operating single plasma collection stations, and expanding the plasma station layout in two additional provincial regions.

In addition to the scarcity of the target, the market also expects that Boya Bio's entry will improve profitability. Green Cross (China) currently has an average plasma collection volume per station of 26 tons, which is still a significant gap from the industry average. Hua Yuan Securities believes that, relying on Boya Bio's excellent management level, there is still a considerable room for improvement in Green Cross's future plasma collection volume and profit per ton of plasma.

Looking at Boya Bio itself, it has mentioned striving to achieve more than 30 plasma stations and a plasma collection scale of over 1,000 tons during the "14th Five-Year Plan" period. The 2023 annual report shows that Boya Bio has 16 single plasma collection stations, of which 14 are in operation, with an approximate raw plasma collection volume of 467.3 tons in 2023. It can be seen that through this acquisition, Boya Bio is one step closer to the goal of a thousand tons.

Hua Xin Securities analysis indicates that the domestic market has formed a competitive landscape of first-tier thousand-ton large blood product enterprises, including Tiantan Biological, Shanghai Rais, Taibang Biological, Hualan Biological, and Pailing Biological. However, compared to the mature industry concentration in Europe and America, the domestic industry concentration is relatively low.According to incomplete statistics, in 2023, China collected a total of 12,079 tons of plasma throughout the year. The top four companies collectively collected more than 7,000 tons of raw plasma, accounting for approximately 60% of the domestic total plasma collection. Following the development trends of mature markets in Europe and America, under the guidance of policies and driven by market competition, China's blood product industry will show a trend of accelerated consolidation. At the same time, the advantages of leading enterprises in terms of resources, funds, and scale will gradually become more prominent. The differentiation between leading enterprises and general enterprises will become increasingly severe, and the concentration of the blood product industry will be further increased.