Today, let's talk about the company Aonong Biotech (603363.SH).
In terms of business, Aonong Biotech's main business is pig farming, which is not particularly attractive; in terms of profitability, the pig farming industry is suffering losses to the extent that it's hard to recognize, and Aonong is in a dire situation; in terms of market value, with a market value of less than ten billion, Aonong Biotech falls into the category of "small-cap" stocks. However, it is this very company that has more than 80,000 shareholders, which can even rival some companies with a market value of hundreds of billions.
Note, this is not the main point.
The main point is that over the past four quarters, the number of Aonong Biotech's shareholders has been increasing quarter by quarter, but the stock price has fallen for four consecutive quarters, with a cumulative decline of more than 70%. In other words, the more the stock price falls, the more retail investors buy, happily trying to bottom-fish.
However, what the 80,000 investors did not expect was that even though the stock price has already fallen by 70%, the company's actual controller has launched a huge plan to reduce holdings at this time, adding insult to injury for the already weak stock price.
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On May 30th, Aonong Biotech announced that the company's actual controller, Wu Youcai, Xiamen Aonong Investment Co., Ltd., and Wu Youlin plan to reduce their holdings in the company's shares through agreement transfer or block trade, with a total reduction of shares not exceeding 475 million, not exceeding 10.09% of the company's total share capital.
Although the actual controller and its concert parties control more than half of Aonong Biotech's shares, the reduction ratio of 10.09% of the total share capital is not common in any A-share company.
Regarding the reason for the reduction, the company is also very generous in admitting:
"To introduce strategic investors, optimize the company's equity structure, and at the same time effectively improve the financial situation of the controlling shareholders and the actual controller, reducing the risk of stock pledge."At the core is the improvement of the financial condition of the actual controller.
Let the data speak.
As of the end of April 2023, 70% of the shares held by the company's controlling shareholder, Aonong Investment, are already pledged, 85.78% of the shares directly held by the actual controller, Wu Youlin, are pledged, and 44.93% of the shares held by the person acting in concert, Yuzhe Investment, are pledged.
It should be emphasized that before August 26, 2022, the aforementioned shares were not pledged. That is to say, in the past half year or so, the pledge ratio of Aonong Biological shares has shown a sharp upward trend. As for the reason, the only explanation is that the company's actual controller is very short of money!
What is a high proportion of pledge, and what kind of risks does it pose?
First, the so-called "pledge" is actually a method of secured financing, which inevitably involves interest and repayment of principal upon maturity; second, the essence of "pledge" can be understood as a guarantee, and once the guarantee ratio is not enough, financial institutions will require the borrower to add pledged collateral or other margin, otherwise they will face the risk of forced liquidation.
The current problem is:
First, Aonong Biological's stock price has fallen by 70% over the past year, and the margin has been severely reduced; second, from 2021 to 2022, Aonong Biological's net profits were -1.52 billion yuan and -1.039 billion yuan, respectively, with a net profit of -180 million yuan in the first quarter of this year. The company's debt-to-asset ratio exceeds 80%, and the book funds are far lower than short-term borrowings and non-current liabilities due within one year, the company is very short of money.
Especially the first point, it can be said to be imminent.
For example, on July 1, 2022, and July 12, 2022, Aonong Investment, controlled by Wu Youlin, pledged 13.6 million shares and 10.53 million shares, respectively, with pledge prices of 18.6 yuan and 23.55 yuan, respectively. However, the current price of Aonong Biological is around 8.5 yuan, which has already broken through the forced liquidation line.According to incomplete statistics, since 2022, it is estimated that Aonong Biotech has had about 30 instances of pledged shares reaching the liquidation line, which one can imagine puts tremendous pressure on the major shareholders.
So, the question arises, what exactly has led the company into this predicament?
The answer is: Expansion against the "pig cycle"!
The pig prices began to plummet from 2021. Against this backdrop, pig enterprises, including Aonong Biotech, harbored an illusion that if they could outlast their peers, they would be the ultimate winner. As a result, instead of reducing production capacity, they significantly increased it against the trend. The outcome is that everyone is gritting their teeth and holding on, with no upward inflection point in sight for the pig cycle, and the duration of the pig price decline has far exceeded initial expectations.
Finally, let's return to the company's stock price.
As mentioned earlier, the actual controller of the company has multiple pledges that have reached the forced liquidation line, forcing them to add margin by reducing shares. But the problem is, with no inflection point in sight for the pig cycle and the company's losses set to continue, the most critical issue is that the company's debt-to-asset ratio has already exceeded 80%, with debt issues becoming increasingly severe.
These three factors are significant weights on the company's stock price. Don't be fooled by the 70% drop in stock price; under the pressure of substantial share reductions, the market's selling pressure is still very severe.
Of course, it's not impossible for the company to save itself by boosting its stock price. But the question is, with such a poor fundamental situation and a lack of imagination in its business, can it be saved for a moment, let alone for a lifetime?