Bet failed? Cross-border e-commerce spends tens of millions to buy back shares

For many companies, when they develop to a certain extent, they will inevitably embark on the road of capitalization and rush for IPO. In 2022, a large number of companies that have gone public through self-financing and backdoor listing have emerged in the cross-border e-commerce industry. Shenzhen cross-border e-commerce company Zhengniao Chuhai is one of them. It "married" the listed company Insai Group and signed a five-year bet agreement. However, after completing the bet in the first year, some "accidents" occurred.

Performance failed to meet targets, Zhengniao Chuhai was required to repurchase shares worth tens of millions

At the beginning of 2022, Shenzhen Zhengniao Chuhai Technology Co., Ltd. (hereinafter referred to as "Zhengniao Chuhai") won RMB100 million in financing from Guangdong Insai Brand Marketing Group Co., Ltd. (hereinafter referred to as "Insai Group"). Insai Group subscribed to the newly added registered capital of RMB135,100 of Zhengniao Chuhai with RMB100 million, corresponding to 11.4259% of the equity after the capital increase of Zhengniao Chuhai. At the same time, since the shareholder Gongqingcheng Yunxiu Chuhai Investment Management Partnership (Limited Partnership) failed to fulfill any obligation to pay the capital increase, it was decided to implement a targeted capital reduction. After the capital reduction was completed, the equity ratio of Zhengniao Chuhai held by Insai Group increased to 11.6526%.

Now, due to performance failure to meet targets, Insai Group requires Zhengniao Chuhai and its management to jointly repurchase in cash all the shares of Zhengniao Chuhai held by Insai Group, with interest provisionally calculated as of November 30, 2022, and the repurchase price of the shares is RMB 74.2694 million.

At the same time, Insai Group requires that within ten working days after the signing of the agreement, the repurchaser must pay the first installment of equity repurchase payment of 5 million yuan; before January 31, 2023, the repurchaser must pay the second installment of repurchase payment of 30 million yuan; and the remaining equity must be paid before March 31, 2023.

When talking about the "marriage" between Zhengniao Chuhai and Insai Group , we have to start with the bet agreement signed by the two parties. At that time, Zhengniao Chuhai and Insai Group signed a five-year bet agreement , requiring Zhengniao Chuhai to have an after-tax net profit attributable to the parent company after deducting non-recurring gains and losses during the period from 2021 to 2025 of no less than 52 million yuan, 71 million yuan, 93 million yuan, 121 million yuan, and 156 million yuan respectively.

Judging from the data in 2021, the net profit that year reached 53.7 million yuan, and the promised completion rate was 103.31%. It can be said that the bet was completed very thrillingly, so much so that many people at that time were worried about the performance of Zhengniao Chuhai in 2022.

Because Zhengniao Chuhai and Insai Group have also signed a supplementary agreement. The supplementary agreement states that if the actual net profit of Zhengniao Chuhai in the first half of 2022 is less than 35% of the completion rate of the full-year promised performance, Insai Group has the right to require Zhengniao Chuhai and its management to repurchase all the shares of Zhengniao Chuhai held by Insai Group in cash.

The result is also obvious. In the first half of 2022, the net profit attributable to the parent company of Zhengniao Chuhai after deducting non-recurring gains and losses was 23.6787 million yuan, which was 35% lower than the promised performance of 71 million yuan for the whole year of 2022, and did not meet the requirements of the supplementary agreement. Therefore, Insai Group required Zhengniao Chuhai to fulfill the contents of the supplementary agreement.

If the payment is completed before March 31, 2023 as required by Insai Group , does it mean that the relationship between Insai Group and Zhengniao Chuhai will return to that before the bet? Is the bet between the two parties declared a failure? Is the "marriage" coming to an end?

Many sellers feel sorry for the situation of Zhengniao Chuhai: "We basically made no profit in the first half of this year, except for a few big promotional nodes in the second half of the year. If Insai Group does not evaluate based on the supplementary agreement, but based on the full-year profit, will the result be different? " However, Zhengniao Chuhai 's revenue and net profit for 2022 have not yet been announced.

Although we still don’t know where the relationship between Insai Group and Zhengniao Chuhai will go in the end, we do know that Zhengniao Chuhai’s previous performance has been very impressive.

The net profit of Zhengniao Chuhai in the year of its establishment was as high as 64.3 million

As a cross-border e-commerce company established in 2020, Zhengniao Chuhai was formerly the platform business department of Tallangzhe International. It is currently located in Bantian, Longgang. It mainly sells household living supplies. Its home lamps, home textiles and pet supplies are mainly sold through platforms such as Amazon, eBay, Wish, etc. to relatively developed regions in Europe and the United States such as the United Kingdom, Germany and Italy.

Different from ordinary companies, Zhengniao Chuhai pays great attention to the construction of its own brands. It currently owns dozens of independent brands, and many brands are recommended on the platform. Many products are ranked very high in their categories.

In 2020, Zhengniao Chuhai was established, and the operating income it created that year reached 552 million yuan, the net profit attributable to the parent company was 64.3 million yuan, and the gross profit margin (excluding distribution income) was about 52%. Among Zhengniao Chuhai's main income, the Amazon platform is its largest revenue channel. In 2022, Zhengniao Chuhai's revenue on the Amazon platform was 504 million yuan, followed by the eBay platform, with revenue of 46.9964 million yuan.

Compared with a number of newly established cross-border e-commerce companies, Zhengniao Chuhai’s performance from the very beginning can be said to be excellent, and many people in the industry have high expectations for it.

In 2021, although the revenue and profit of Zhengniao Chuhai both declined, its gross profit margin (excluding distribution income) did not change much, at 53%. In the financial data for the first nine months of 2021 released by Zhengniao Chuhai, we can also see that household products contributed the largest source of income for the company, accounting for more than 70% of the total revenue , followed by sports and outdoor categories.

Zhengniao Chuhai also knows that products are the foundation of market competitiveness, especially household products, which account for a large proportion of revenue. In the future, Zhengniao Chuhai plans to carry out targeted special research and development and launch small-volume, air-transportable, and relatively high-priced high-quality household products.

In order to meet the needs of customers, Zhengniao Chuhai is constantly increasing the speed of product launches, from an average of 165 models per month in 2021 to an average of more than 300 models per month in 2022.

At the same time, Zhengniao is also planning to expand its market. While continuing to deepen its presence in the European and American markets, Zhengniao also plans to quickly explore emerging markets such as Asia and South America to further expand its overseas market share. In addition, in 2022, the company also established a new department to operate multiple platforms such as Walmart, Wayfair, Japan's Rakuten, South Korea's Coupang, Poland's Allegro, and France's Cdiscount, which will provide new impetus for the continued growth of future sales while enriching the sales channels of its products.

Regardless of the future direction of Zhengniao Chuhai and Insai Group, Zhengniao Chuhai itself still has great development potential. However, in the current environment, whether Zhengniao Chuhai can maintain its original revenue and profit and further promote performance growth is still unknown.

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