Sinochem International Plans M&A of Chemical New Materials "Invisible Champion," First-Half Revenue May Increase by Over 2.3 Billion

On the evening of July 28, Sinochem International (600500.SH) released a draft plan for an asset purchase and related party transaction, stating that it intends to acquire 100% equity of Nantong Xingchen Synthetic Materials Co., Ltd. (“Nantong Xingchen”) held by China National Bluestar (Group) Co., Ltd. (“Bluestar Group”) by issuing shares to Bluestar Group.

Due to the fact that the related audit, appraisal, and due diligence work for this transaction has not yet been completed, the appraised value and transaction price of Nantong Xingchen have not been determined. Meanwhile, Sinochem International stated that on July 29, 2025, the company's stock resumed trading and hit the daily limit increase after the market opened.

The Times Weekly has noted that Nantong Xingchen is actually a "hidden champion" in the field of new chemical materials in China. According to the official WeChat account of Sinochem's Chemical Division, Nantong Xingchen's star product, polyphenylene ether (PPE) material, was included in the seventh batch of the Ministry of Industry and Information Technology's list of manufacturing single champion products in 2022. Previously, PPE was one of the engineering plastics with the highest dependence on imports and was listed as an encouraged construction project in the industrial policy guidance catalog of the National Development and Reform Commission. As of December 2022, Nantong Xingchen had a production capacity of 50,000 tons per year of polyphenylene ether, including 20,000 tons per year by precipitation method and 30,000 tons per year by solution method.

According to the disclosure by Sinochem International, Nantong Xingchen achieved operating revenues of 4.685 billion yuan, 4.410 billion yuan, and 2.370 billion yuan in 2023, 2024, and the first half of 2025, respectively. The net profits attributable to the parent company were 54.0512 million yuan, 46.3027 million yuan, and 158 million yuan, respectively. If the transaction is completed within this year, Sinochem International's revenue for the first half of the year may increase by more than 2.3 billion yuan.

The transaction plan indicates that the pricing benchmark date for the share issuance is July 29, 2025. The issuance price of shares to Bluestar Group is RMB 3.51 per share, which is not lower than 80% of the average trading price of the listed company's stock over the 120 trading days prior to the pricing benchmark date, and also not lower than the most recent audited net asset value per share attributable to the shareholders of the listed company.

It is noteworthy that due to the cyclical nature of the chemical industry, Sinochem International has recorded losses for two consecutive years. In response to how the company is addressing the cyclical fluctuations of the chemical industry, Sinochem International told Times Weekly that the company is currently advancing its work in an orderly manner according to its annual plan, and the latest plans can be referenced in the relevant information in the performance forecast.

Increase investment in the field of new chemical materials

The Times Weekly reporter found that Nantong Xingchen and Sinochem International are both companies in the chemical industry specializing in new chemical materials, each possessing a certain scale of epoxy resin and bisphenol A. Nantong Xingchen's main business includes the research, production, and sales of polyphenylene ether, polybutylene terephthalate and corresponding modified engineering plastics, as well as fine chemical products such as epoxy resin and bisphenol A. Nantong Xingchen's products have been widely penetrated into traditional industries such as coatings, adhesives, automotive, and home appliances, and have achieved significant applications in emerging fields such as new energy, intelligent driving, and next-generation communication technologies.

Sinochem International believes that upon completion of the acquisition of equity in Nantong Xingchen, it will further enhance its competitiveness in epoxy resins and leverage synergies in the engineering plastics industry chain. This will enable a rapid expansion of its product portfolio in the high-performance, high value-added engineering plastics sector. The new products can be integrated with the company's existing ABS and PA product lines to create a more competitive and differentiated product offering, achieving an integrated solution for customers' material needs.

On one hand, Nantong Xingchen's epoxy resin and bisphenol A businesses complement Sinochem International's epoxy resin business in terms of capacity, grade, and customer applications. This can enhance the competitiveness of the listed company's epoxy resin industry chain, thereby leveraging industry chain scale advantages and bargaining power, as well as promoting technological research and development and the enhancement of new product development capabilities. On the other hand, Nantong Xingchen possesses strong technical and product competitive advantages in the fields of PPE and PBT engineering plastics, with its industry chain covering core intermediates to downstream modified engineering plastics.

Regarding the prospects after the completion of the transaction, Sinochem International stated that Nantong Xingchen will be included in the consolidated financial statements of the listed company. It is expected that the implementation of this transaction will enhance the company's asset scale, operating income, and net profit level, which will help the listed company further expand its sources of income and diversify overall operational risks.

According to the official website, Nantong Xingchen's shareholder Bluestar Group is a globally leading chemical materials and specialty chemicals company under China National Chemical Corporation (ChemChina). Since its establishment, Bluestar has achieved rapid development through continuous innovation and mergers and acquisitions. Currently, it owns 53 factories worldwide, with business spanning over 200 countries and regions, making it one of China's important chemical enterprises.

As a counterparty in this share issuance for asset acquisition, Bluestar Group undertakes that the shares of Sinochem International acquired through this transaction shall not be transferred within 36 months from the date of completion of the share issuance. Should there be any further agreements regarding performance commitments and compensation, Bluestar Group and Sinochem International will make supplementary arrangements regarding the lock-up period accordingly.

It is expected to incur a loss of at least 800 million yuan in the first half of the year.

Sinochem International was established in 1998 and listed on the Shanghai Stock Exchange in 2000. China National Chemical Corporation Ltd. holds a 54.30% stake in the company, making it the controlling shareholder. Sinochem International is a large state-controlled listed company with core competitiveness in intermediates, new materials, polymer additives, and other fields. Its customers are spread across more than 100 countries and regions worldwide.

As a company in a highly cyclical industry, Sinochem International has experienced significant fluctuations in its performance. After a surge in 2017, the company's growth slowed, with lukewarm results in 2019 and 2020. In 2021, Sinochem International once again reached a highlight moment. That year, the company's revenue reached 80.648 billion yuan, a year-on-year increase of 48.90%. Net profit attributable to shareholders soared from 307 million yuan in 2020 to 2.175 billion yuan, representing a year-on-year increase of 608.90%.

However, since 2022, the domestic chemical industry has once again entered a downturn. From 2023 to 2024, Sinochem International recorded net losses attributable to shareholders of 1.848 billion yuan and 2.837 billion yuan, respectively. According to the company’s forecast for the first half of 2025, net profit attributable to shareholders is expected to show a loss of between 807 million yuan and 949 million yuan.

To analyze the reasons for the anticipated loss, Sinochem International examines the company's business from the perspectives of the impact of main operations and non-operating profit and loss. The impact of the main operations is still due to the low prices of chemical products. However, Sinochem International also mentioned that with the stable operation of facilities represented by C3, the production capacity load is increasing month by month, and the efficiency and cost advantages of the integrated industrial chain are gradually becoming apparent. The losses from the new facilities have narrowed on a month-on-month basis.

The Times Weekly reporter found that although Sinochem International's performance in 2024 has declined significantly, the sales growth of some key products remains strong. Sales of antioxidants increased by 6.26% year-on-year, bisphenol A sales grew by 32.40% year-on-year, epoxy resin sales rose by 23.49% year-on-year, and nylon 66 sales surged by 70.99% year-on-year. At the same time, Sinochem International is also making efforts on the production side, with the utilization rate of its main facilities steadily improving. The output of C3 industry chain products in 2024 reached 1.84 million tons, a year-on-year increase of 89%.

Source: Mammoth Capital Bureau