State conglomerate China Resources is in early-stage talks with Sihuan Pharmaceutical’s chairman about jointly taking the Hong Kong-listed company private in a deal valuing it at nearly $3 billion, two people with knowledge of the matter said.
Sihuan is attractive to China Resources (Holdings) Co Ltd, they said, due to sharp growth for its medical aesthetics business after the company became the exclusive distributor in China for Letybo, a botox product made by South Korea’s Hugel Inc.
China Resources and Che Fengsheng, Sihuan‘s chairman and largest shareholder, are considering offering HK$2.5 per share, the people said. That represents a premium of more than 60% to the firm’s average share price over the past three months of HK$1.53.
But just how much China Resources and Che would each own if the deal went ahead has yet to be determined, they added.
Che has a 36.2% stake, according to the company’s 2021 annual report. China Resources does not currently own Sihuan shares, said the sources, who declined to be identified as the companies have not disclosed the discussions.
Shares of Sihuan soared as much as 24% on Thursday after Reuters reported the plan but only finished 3.5% higher.
China Resources declined to comment and Che did not respond to a request for comment made via Sihuan.
Sihuan said in a statement that “there is no plan to privatize the group” but did not directly address a query about whether Che and China Resources were in talks to take the company private.
China Resources and Che aim to eventually list Sihuan on the mainland to take advantage of higher valuations there, one of the sources said.
The company, which also has generics and innovative drugs businesses, is trading at 12 times trailing earnings in Hong Kong. That’s far below multiples of 89 and 70 for Imeik Technology Development and Bloomage Biotechnology, both mainland-listed peers in medical aesthetics.
Amid surging demand for plastic surgery and products like botox, revenues for China’s medical aesthetics market almost tripled to 177 billion yuan ($26 billion) in 2019 compared to 2015 levels, according to iResearch. It predicts the market will be worth 312 billion yuan by 2023.
Sihuan saw revenue for its medical aesthetic division soar nearly 1,400% last year to 399 million yuan ($59 million), accounting for 12% of its total income. The division is also developing products such as skin repair gel.
Founded in 1938, China Resources is one of the country’s largest state-owned conglomerates with businesses spanning real estate, healthcare, consumer goods, energy and finance. Its unit China Resources Pharmaceutical manufactures a variety of drugs in China under well-known brands, including “999”, a popular cold remedy.