Valuation Premium Exceeds 520%! Huentong Share Plans to Acquire 40% Equity of Aolong Biotech for 274 Million Yuan—Can the 255 Million Yuan Performance Commitment Behind the High Valuation Be Fulfilled?

Everyday Economic News Reporter | Cai Ding Everyday Economic News Editor | Liao Dan

Hengtong Co., Ltd. (SH600226, stock price 6.02 yuan, market value 17.91 billion yuan) announced on the evening of March 13th that to further diversify the company’s product offerings, improve business layout, fully leverage industrial synergy, and create a comprehensive product matrix integrating veterinary vaccines, veterinary drugs, feed additives, and other products, the company and Huapai Biotechnology (Group) Co., Ltd. (hereinafter referred to as Huapai Biological) signed an equity transfer agreement today. The company will acquire 40% of Chongqing Aolong Biological Products Co., Ltd. (hereinafter referred to as Aolong Biological or the target company) held by Huapai Biological with self-raised or internally raised funds of 274 million yuan.

According to the announcement, this transaction has been unanimously approved by the company’s 9th Board of Directors at the 32nd meeting and does not require shareholder approval. This transaction does not constitute an associated transaction or a major asset reorganization. Although after the acquisition, Hengtong Co. will hold a 40% stake in Aolong Biological, the target will not be included in the company’s consolidated financial statements. Additionally, the transaction has not yet been finalized, and there may be changes during implementation, including risks of suspension, termination, or cancellation of the deal.

Huapai Biological and its affiliates owe the target company approximately 135 million yuan in debts

The “Daily Economic News” reporter (hereinafter referred to as the reporter) noted that Hengtong Co.'s transaction counterpart, Huapai Biological, is located in Chengdu East New District, established in December 2008. Aolong Biological was founded in December 2007 with a registered capital of 50 million yuan. Before this transaction, Huapai Biological held 96% of Aolong Biological, and Chongqing Paiheng Aotong Enterprise Management Center (Limited Partnership) held 4%. Xie Jianyong owns 39.03% of Huapai Biological and is the actual controller of Aolong Biological.

Source: Hengtong Co. announcement

The announcement shows that Aolong Biological is registered and primarily based in Rongchang District, Chongqing. It is a modern biological products enterprise integrating research, development, production, sales, and technical services for animal vaccines, mainly producing vaccines for foot-and-mouth disease, brucellosis, swine fever, and other major animal diseases, with multiple proprietary brands.

The announcement also states that although Hengtong Co. is only acquiring a 40% stake in Aolong Biological, it will nominate two of the five directors on the board and directly appoint a CFO and deputy general manager to participate deeply in daily operations and financial management.

It is important to note that Huapai Biological and its related parties currently owe the target company approximately 135 million yuan in debts and related guarantees. The announcement clearly states that Huapai Biological will settle all debts and解除担保 after receiving the first installment of the equity transfer payment, before Hengtong Co. makes the second payment.

According to the audited financial data disclosed by the announcement, the target company is expected to achieve revenue of about 142 million yuan and a net profit of approximately 19.56 million yuan in 2024; in the first eight months of 2025, revenue is about 146 million yuan with a net profit of 64.84 million yuan.

Source: Hengtong Co. announcement

Valuation using income approach shows a premium of over 500%

The announcement cites an asset valuation report issued by Northern Asia Asset Appraisal Co., Ltd., which states that as of August 31, 2025, using the income approach as the valuation conclusion, the total equity value of Aolong Biological is approximately 752 million yuan, which is 631 million yuan higher than its book value of 121 million yuan, representing an appreciation of 521.71%. However, the final transaction did not fully adhere to this maximum valuation. After negotiations, the actual transaction price for 100% of Aolong Biological was discounted to 685 million yuan, with the 40% equity transfer price set at 274 million yuan.

Regarding the reason for the high valuation premium, Hengtong Co. explained that mainly because, on the valuation date, the target company distributed dividends totaling 255 million yuan, significantly reducing net assets and thus increasing the valuation appreciation rate. Additionally, the valuation was based on the income approach, which discounts the company’s future free cash flows. The high net profit from January to August 2025 and the market competitiveness of the company’s products contributed to the increased valuation.

The announcement also states that Huapai Biological has made clear performance commitments: Aolong Biological’s net profits (the lower of net profit attributable to shareholders after non-recurring gains and losses and net profit attributable to shareholders) for 2026, 2027, and 2028 will not be less than 80 million, 85 million, and 90 million yuan respectively, totaling 255 million yuan, with an average of no less than 85 million yuan over three years.

Furthermore, Hengtong Co. also highlighted risks regarding the fulfillment of this performance commitment: the achievement of the target company’s performance depends on policy environment, market demand, operational conditions, and impairment losses. If adverse factors affecting the main business occur during the performance period, there is a risk that the actual performance may not meet the commitments.

Data from Eastmoney shows that in the secondary market, Hengtong Co. experienced a volume-driven limit-up in the afternoon trading today, with a total turnover of 1.06 billion yuan and a turnover rate of 6.1%.