[Industry Focus]：Satellite Chemical Plus Code Epoxy Propane Business, Proposed 1.524 billion Yuan to Acquire 100% of Jiahong New Material

In order to promote the company's overall strategic planning, satellite chemistry intends to increase the high-end chemical new materials through mergers and acquisitions, to further play its own industrial chain integration advantages.

On the evening of September 12, Satellite Chemical announced that its wholly-owned subsidiary Lianyungang Petrochemical Co., Ltd. (hereinafter referred to as "Lianyungang Petrochemical") intends to acquire 100 percent of Jiangsu Jiahong New Materials Co., Ltd. (hereinafter referred to as "Jiahong New Materials").

Specifically, Lianyungang Petrochemical plans to acquire all the shares of Jiahong New Material held by Satellite Holdings and Kunyuan Investment in cash, with a transaction amount of 1.524 billion yuan.

The acquisition target Jiahong New Material was established on December 31, 2019, with a registered capital of 1 billion yuan and a paid-in registered capital of 1 billion yuan, of which 70% is held by Satellite Holdings and 30% by Kunyuan Investment. Since its establishment, the registered capital and shareholding structure of Jiahong New Material have not changed. Satellite Holdings is the controlling shareholder of Satellite Chemical. As a result, the transaction will help reduce related transactions between the controlling shareholder and the listed company and avoid potential horizontal competition that may exist in the future.

From the perspective of business development, Jiahong New Material is mainly engaged in propylene oxide and hydrogen peroxide. According to the plan, the company will build a new high-performance new material project in Xuwei New District, Lianyungang City, Jiangsu Province. On December 27, 2020, Satellite Holdings and the Administrative Committee of the National East-Central-West Regional Cooperation Demonstration Zone (Lianyungang Xuwei New District) signed a cooperation agreement on investment projects in Xuwei New District, promising to build projects including 900000 tons of olefin raw material processing and downstream HPPO, acrylonitrile, ABS, acrylamide and other high-performance material industrial chain projects and related public and auxiliary facilities (I .e. "high-performance new materials project"), with a total investment of 20.2 billion yuan (including tax), and by Jiahong new material is responsible for the specific implementation.

The high-performance new material project is constructed in two phases, of which the first phase is constructed in three phases, of which the first phase of the project is an annual output of 400000 tons of propylene oxide. The project will start in June 2021, and the first phase will enter the trial operation stage in January 2023. The project is in continuous progress. Three 450000-ton/year HP units, one 400000-ton/year PO unit, 220KV total drop, elevated torch, supporting storage and public works and other supporting facilities have been completed. As of the end of July 2023, the cumulative investment in high-performance new materials projects was 4.042 billion yuan (including tax).

For a long time, Satellite Chemistry has adhered to the development strategy of "creating the future with science and technology, based on the integration of light hydrocarbons, and building a low-carbon chemical new material technology company". It has the advantage of integrating the industrial chain from light chemical raw materials to new chemical materials, and vigorously develops New energy materials, new polymer materials and functional chemicals.

Merger and acquisition is an important way for enterprises to realize strategic planning. For satellite chemistry, the acquisition of Jiahong New Material is conducive to promoting the implementation of the company's overall strategic planning, improving the company's C3 industrial chain product structure, while forming the company's epoxy propane and ethylene oxide two products complementary, extending the downstream epoxy derivatives high-end chemical industry chain.

It is reported that Jiahong New Material PO Plant adopts HPPO propylene oxide process technology, which is a relatively advanced production process in the world at present. Compared with the production process and device of the same product, the production sewage output is reduced by 70% ~ 80%, the unit consumption is reduced by 35%, and it has high safety and stability. The National Development and Reform Commission's "Industrial Structure Adjustment Guidance Catalog (2023)" (draft for comments) includes the HPPO process in the encouraged category. According to the announcement No. 59 of 2015 issued by the Ministry of Commerce and the General Administration of Customs, the direct oxidation method (HPPO process) is the only product allowed to be exported in China at present, and other processes of propylene oxide are still managed according to the prohibited category.

In addition, from the growth target of mergers and acquisitions, the target's own performance is gradually released, the latest revenue and net profit performance can see its growth potential.

Financial data shows that in 2022, Jiahong New Material's operating income was about 1.95 million yuan, and its net profit was about 80000 yuan; from January to July 2023, the company's revenue scale was nearly 0.6 billion yuan, and its net profit was about 7.32 million yuan.

Satellite Chemical also described the financial impact of the transaction in the announcement. The transaction is an industrial merger and acquisition under the same control and will not change the accounting method of Jiahong New Material. After the completion of the transaction, Jiahong New Material will be included in the consolidated statements of listed companies to enhance the company's operating performance and profitability.