14.3 Billion Acquisition! Where Will The Chemical Industry Leader 'Transform' in The Future?

Recently, Oriental Shenghong issued shares and paid cash to purchase 100% of Serbon’s equity and raised matching funds and related transactions were “unconditionally approved” by the China Securities Regulatory Commission’s Mergers and Acquisitions and Restructuring Committee.

The acquisition of Jiangsu Sierbang Petrochemical Co., Ltd. by Oriental Shenghong, which has been following the market for a long time, has finally landed on its boots. It is not too long before Oriental Shenghong officially acquired Serbon Petrochemical.

Dongfang Shenghong, whose main business is the "refining and chemical fiber" industrial chain, why is it focused on acquiring Serbon? What impact will this acquisition have on the company's development strategy and business performance?

Why buy Serbon?

In May of this year, Oriental Shenghong officially launched the reorganization of Serbon Petrochemical, a subsidiary of the same parent company. On July 10th, Oriental Shenghong finally decided to purchase 14.36 billion yuan, through the issuance of shares and payment in cash, to purchase 100% of the total equity of Serbon held by the counterparty, and to no more than 35 qualified specific investors Issue shares to raise matching funds.

At the beginning of August this year, Shenghong Group announced that it has carried out a major strategic adjustment, taking the lead in proposing a comprehensive strategic transformation to build a world-leading new energy and new material industry group in the industry, centering on the national strategic direction and the "dual carbon" target requirements. During the 14th Five-Year Plan period, the company will be built into a high-tech industry group with “strong basic raw material guarantee capabilities, world-leading scientific research and innovation capabilities, and world-class new energy and new materials supply capabilities”.

In this context, the injection of Serbang is particularly important. Shenghong Group is accelerating its deployment in the three major directions of new energy, high-performance new materials, and low-carbon green industries. As the most important subsidiary and listing platform of Shenghong Group, Dongfang Shenghong will undoubtedly carry the main force for the implementation of this strategy. And Serbon is comprehensively and deeply advancing the "two new" industrial layout, which is also an important platform for carrying the strategic transformation of Shenghong Group.

Taking photovoltaic-grade EVA resin as an example, Serbon is currently the largest manufacturer in China, and its customers include leading companies such as Foster and Haiyou New Materials.

"From January to September this year, our photovoltaic-grade EVA output was 160,000 tons, which has surpassed last year’s output of 150,000 tons. It is estimated that the total output this year will exceed 250,000 tons. The clean energy transition provides stability guarantee." Said Bai Wei, general manager of Serbon Petrochemical, said.

Regarding the strategic influence injected by Serbang, Oriental Shenghong recently stated on the investor interaction platform that once Serbang’s major asset restructuring is completed, the company will form a low-cost core raw material platform + new energy, new materials and other diversified industries. The new "1+N" pattern of the chain.

The market is also optimistic about this major asset reorganization. Many institutions believe that the injection of Serbon will have significant benefits for Oriental Shenghong's strategic layout and operating results. Industrial Securities pointed out in the research report that if the reorganization can be successfully achieved, it will not only solve the problem of horizontal competition among different companies under the same parent company when Dongfang Shenghong is listed, but also significantly expand the downstream category richness of the listed company’s petrochemical products. With the scale of production, expand the industrial chain layout, enhance the synergy between various projects, enhance the company's comprehensive profitability and risk resistance, further optimize the product line structure, and enhance production capacity and industrial chain competitiveness.

"New" Sheng Hong in Transition

Through the acquisition of Serbon, Oriental Shenghong's new business structure has gradually emerged. After the completion of the acquisition, Dongfang Shenghong will not only have the entire industrial chain layout of "from a drop of oil to a thread", but will also cut into the fields of new materials and new energy to form an industrial matrix of "refining + polyester + new materials".

According to the analysis of the Cinda Securities Research Report, my country's current import dependence on EVA for photovoltaic materials is close to 60%. At the same time, the cumulative installed capacity of my country's photovoltaic market has a five-year compound annual growth rate of 43.48%. The superimposed "dual-carbon" policy is gradually implemented. The photovoltaic market still has broad space, and the demand for photovoltaic material EVA is still a blue ocean. As a domestic EVA leader, Serbon Petrochemical has injected Dongfang Shenghong to help build Dongfang Shenghong's "refining + polyester + new materials" integrated petrochemical leader, and the market value is expected to continue to increase.

In addition to photovoltaic material EVA, Serbon is building a propane industry chain and will also become the leading project in the industry chain of Shenghong's "double new" transformation strategy. On November 30, the second-phase propane industrial chain project of Serbang ushered in a key node, and the 260,000 tons/year acrylonitrile (Ⅲ) plant was successfully handed over, marking that the project officially entered the production preparation stage. After commissioning, the company's overall production capacity of acrylonitrile will be increased from 520,000 tons/year to 780,000 tons/year, ranking first in the country, further consolidating the company's leading position in the acrylonitrile industry. In the context of the rapid development of the wind power industry, the expansion of carbon fiber production capacity is expected to bring a steady increase in the performance of Serbang.

At the same time, the propane industry chain project will become the first fully implemented project in Shenghong Group’s "Three Megaton Industrial Projects" plan, and will provide strategic support for the subsequent "chain extension" in the development of new energy, new materials, electronic chemistry, and biotechnology. Emerging industries are of great significance in promoting the realization of the "dual carbon" goal.

"Double chain + double wheel" is worth looking forward to

At present, Dongfang Shenghong is relying on the 16 million tons/year integrated refining and chemical project under construction to step up the construction of a world-class large-scale raw material guarantee platform for new energy and new material industrial bases. After the acquisition of Serbon, the advantages of Dongfang Shenghong's industrial chain synergy will be further highlighted. It will not only realize the mutual supply of more than 80% of the raw materials and products in the base, but also build a complete closed loop of the high-end petrochemical industry chain. It will also greatly compensate for my country The domestic supply rate of high value-added and scarce chemical products such as olefins and aromatics will provide raw material guarantee for the subsequent "chain extension" of the development of new energy, new materials, electronic chemistry, biotechnology and other strategic emerging industries.

It is worth mentioning that Shenghong's industrial layout is a rare dual-chain model of "aromatics and olefins" in China. While providing important basic raw materials for the production of high-end new materials, it is also accelerating the extension of the innovation chain and value chain. At present, Sheng Hong has made breakthroughs in the fields of new energy materials, high-performance membrane materials, bio-based materials, biomedical materials, high-performance fibers and composite materials.

Therefore, Serbon, as a domestic new energy high-end material supplier, will accelerate the layout of Dongfang Shenghong’s new energy industry. The synergy between the two will also help Shenghong Group to accelerate the realization of the goal of strategic transformation. The wheel-driven business development model is worth looking forward to.