Core Viewpoint - Zhenbaodao is accelerating the improvement of its traditional Chinese medicine industry chain layout through the acquisition of a 49% stake in Guizhou Shennong Valley, which will become a wholly-owned subsidiary of its subsidiary Bozhou Trading Center [1] Group 1: Acquisition Details - The acquisition amount is 490 million yuan, which includes the investment principal and interest from the fund during the investment period [1] - Guizhou Shennong Valley was established in August 2023 with a registered capital of 1 billion yuan [1] - As of March 31, 2025, Guizhou Shennong Valley has total assets of 1.062 billion yuan and net assets of 998 million yuan [1] Group 2: Financial Performance - In 2024, Zhenbaodao achieved revenue of 2.704 billion yuan, a year-on-year decrease of 13.84%, marking the lowest record in five years [2] - In the first quarter of 2025, the company reported a revenue decline of 58.03% to 469 million yuan and a net profit decline of 74.33% to 75.3 million yuan [2] - The decline in revenue and profit is attributed to the postponement of the third batch of national Chinese medicine procurement [2] Group 3: Product Development - On the same day as the acquisition announcement, Zhenbaodao received approval for clinical trials of its Fufang Qinlan Oral Liquid for children aged 4-12 [3] - The pediatric medication sector is experiencing significant policy benefits, and Fufang Qinlan Oral Liquid is positioned as a core product in Zhenbaodao's "anti-viral Chinese medicine matrix" [3] - The company’s total assets reached approximately 12.713 billion yuan by the end of 2024, with a year-on-year growth of 1.98% [3]

Core Viewpoint - The acquisition of a 49% stake in Guizhou Shennong Valley by Zhenbaodao for 490 million yuan is seen as a strategic move to enhance its presence in the traditional Chinese medicine industry in Guizhou, despite concerns over high debt levels and the target company's losses [1][2]. Financial Performance - In Q1 2025, Zhenbaodao's net profit attributable to the parent company plummeted by 74.33% to 75.29 million yuan, with negative cash flow from operating activities amounting to -267 million yuan, a 158% decrease year-on-year [2]. - The company's cash reserves decreased by 43% year-on-year to 781 million yuan, while interest-bearing liabilities reached 3.46 billion yuan, resulting in an asset-liability ratio of 35% [1][2]. Acquisition Details - The acquisition requires a payment of 490 million yuan, which would consume 62.7% of Zhenbaodao's cash reserves [1]. - Guizhou Shennong Valley reported revenue of 51.1 million yuan in 2024, with a net profit of only 162,800 yuan, and experienced a significant revenue drop to 197,200 yuan in Q1 2025, incurring a loss of 1.78 million yuan [2]. - The valuation of the 49% stake in Guizhou Shennong Valley at 490 million yuan corresponds to a static price-to-earnings ratio exceeding 3000 times, indicating a significant disparity between the estimated future cash flows and the transaction price [2].