Jiangnan Chemical (002226) has entered into a 170 million yuan deal to acquire 51% equity of Sichuan Ebian Guochang Chemical Co., Ltd. from Sichuan Ebian Changlong Chemical Co., Ltd. The transaction, based on a discounted valuation of Guochang’s 337 million yuan net assets (as of October 2024), will consolidate Guochang as a subsidiary under Jiangnan Chemical.
Guochang specializes in industrial explosives, including gel-like emulsified explosives and modified ammonium oil explosives, with an annual licensed production capacity of 35,000 tons approved by China’s Ministry of Industry and Information Technology (MIIT). Its market spans Sichuan, Yunnan, and Guizhou provinces, though financials show modest performance—13.79 million yuan revenue and 848,100 yuan net profit from January to April 2025.
The acquisition aligns with Jiangnan Chemical’s strategy to expand its foothold in western China’s mining and infrastructure sectors. However, the low profitability of Guochang raises questions about the premium paid (implied enterprise value of ~333 million yuan for 51% stake versus trailing annualized net profit of ~2.54 million yuan). Investors should monitor post-transaction integration and capacity utilization improvements.
Regulatory scrutiny may arise given the sensitive nature of explosive materials, though Jiangnan’s existing expertise in chemical manufacturing likely mitigates operational risks. The deal is expected to close pending standard approvals, with no major asset restructuring implications.
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