Liu Yonghao once again trusts MINSHENG BANK

After a four-year hiatus, MINSHENG BANK (600016.SH) has finally welcomed an increase in holdings from its former largest shareholder.

On November 18, New Hope Chemical Investment, under Liu Yonghao, plans to increase its stake in MINSHENG BANK.

In addition, the equity held by New Hope (000876.SH) controlled New Hope Liuhe Investment and New Hope Group-controlled Southern Hope Industry has reached 4.96%. After this round of increase, the shareholding ratio of Liu Yonghao's entities will exceed 5%, reaching the threshold for a stake increase.

As one of the founding shareholders, Liu Yonghao's presence has always been evident behind the "in and out" of MINSHENG BANK's equity.

At the beginning of its A-share listing, the "New Hope system," "Oriental system," and "Panhai system" formed a tripartite balance, with Liu Yonghao's New Hope Investment as the largest shareholder, and he was also elected as vice chairman.

From 2014 to 2015, insurance capital represented by the "Anbang system" entered the market. Liu Yonghao withdrew decisively, continuously reducing his holdings over the following years, maintaining a shareholding ratio of around 4.5%.

From 2019 to 2020, Liu Yonghao made 34 incremental purchases in his personal capacity, raising the "New Hope system" shareholding ratio to the 4.96% threshold for a stake increase.

Although Liu Yonghao has long served as vice chairman of MINSHENG BANK, there have been no significant moves in equity since then; the forces that once competed with him, such as the "Panhai system" and "Anbang system," have also been submerged by the river of time.

This new round of increases seems to signify that the "New Hope system" is doubling down on its confidence in MINSHENG BANK.

Once regulatory approval is completed, MINSHENG BANK will have, apart from Dajia Life Insurance, its second A-share shareholder with a stake exceeding 5%.

The Dilemma of the "Pig Cycle"

From the timing of the increase, the "New Hope system" is still under the pressure of the previous "pig cycle."

As the "King of Feed," Liu Yonghao, who leads New Hope, felt the low profit margins in the feed industry and invested 616 million yuan in 2016 to acquire 70% of Shaanxi Benxiang Agriculture, forcefully entering the pig farming market.

At the end of 2018, the pig farming industry, under the outbreak of African swine fever, entered the "strongest pig cycle in history."

During this period, the "new pig farming noble" New Hope expanded through debt, tasting the sweetness of dividends while also sitting on the sidelines at the bottom of the cycle.

In the first half of the cycle, New Hope, under the windfall, reached a performance peak after its listing, achieving nearly 10 billion yuan in profit in 2019-2020.

Subsequently, expansion accelerated, with the number of pigs sold reaching 17.68 million in 2023, more than five times that of 2019.

In 2021, the "pig cycle" entered its second half, with supply exceeding demand and pig prices declining.

New Hope incurred a loss of nearly 9.6 billion yuan in 2021, and its profit performance remained bleak thereafter; after selling its white feather poultry and food business in 2023, it barely turned a profit, with profits of only 153 million yuan in the first three quarters of 2024.

As profits come under pressure, the debt burden from the expansion cycle continues to loom In 2023, New Hope's debt-to-asset ratio "soared" to 72.28%, which is generally 10 percentage points higher than its peers; interest expenses alone have reached 2.047 billion yuan, eight times the profit for the same year.

Under pressure, New Hope has financed through bank loans, bond issuance, and private placements.

For example, in November 2023, it issued 1.364 billion shares in a private placement, raising no more than 7.35 billion yuan for pig farm security and digital upgrades, acquiring minority stakes in its holding subsidiaries, and repaying bank loans.

As of the end of the first half of the year, short-term loans, non-current liabilities due within one year, and long-term loans were 19.65 billion yuan, 9.399 billion yuan, and 24.753 billion yuan, respectively.

In contrast, the only 10.808 billion yuan in cash is insufficient to cover the financial pressure.

Entering 2024, the price of commodity pigs has shown a significant rebound.

The price of commodity pigs sold by New Hope increased from 13.3 yuan per kilogram in January to 20.13 yuan in August.

In October, the price of commodity pigs fell back to 17.37 yuan/kg, an increase of 16.50% compared to the same period last year, but a month-on-month decline of 7.66%.

Analyst Chen Xueli from Kaiyuan Securities stated that from a supply and demand perspective, pork supply in the fourth quarter is expected to be lower than the same period last year, providing support for pig prices; however, in the first half of next year, as pig supply recovers and enters the off-season for pork consumption, pig prices may face further pressure.

Why Increase Investment in Minsheng

Although Minsheng Bank's performance in recent years has not been outstanding among its peers, it remains a rare glimmer of hope for New Hope, which is deeply mired in the second half of the "pig cycle."

Historically, the profit contribution from Minsheng Bank's equity has been far more stable than New Hope's main business.

Even during the peak performance in 2019, the 4.18% equity stake indirectly held by New Hope brought in 2.247 billion yuan in earnings, accounting for 36.36% of the company's net profit.

After that, New Hope did not disclose the specific earnings from its investment in Minsheng Bank year by year, but estimates based on investment returns suggest it may remain around 1 billion yuan.

In the first half of 2024, New Hope's investment income, "mainly recognized using the equity method for holding Minsheng Bank shares," has exceeded 1 billion yuan.

Moreover, New Hope is indeed one of the "founding elders" of Minsheng Bank.

Although its capital layout spans agriculture, animal husbandry, dairy, finance, and other fields, Liu Yonghao still regards his investment in Minsheng Bank as one of "two opportunities grasped in his lifetime."

In 1996, Liu Yonghao, chairman of New Hope, co-founded Minsheng Bank with Zhang Hongwei from Dongfang Group, Lu Zhiqiang from China Oceanwide Holdings Group, Wang Yugu from the China Shipowners Mutual Assurance Association, and Shi Yuzhu from Giant Group.

Before going public, Minsheng Bank experienced over 20 equity transfers concentrated in a year and a half, with the final "winners" concentrated among the "New Hope system," "Oceanwide system," and "Dongfang system."

Although Liu Yonghao leads New Hope Group, the largest shareholder of Minsheng Bank, he also "exited" the vice-chairman competition at the board meeting in 2006, missing out on a board seat Since then, China Life, the "Anbang system," Huaxia Life, and other insurance funds have successively entered the market, escalating the equity dispute.

Liu Yonghao continues to serve as vice chairman, but has adjusted his shareholding to below 4.5%.

Until 2019-2020, Liu Yonghao increased his holdings in Minsheng Bank's H-shares 34 times, raising the "New Hope system" shareholding ratio to the threshold for a stake increase.

After that, the "New Hope system" ceased its efforts to further seek equity in Minsheng Bank until this recent increase.

Looking back from the present, both New Hope and Minsheng Bank have not been smooth sailing since 2020.

After a brief peak in net profit, New Hope struggled in the second half of the "pig cycle," while Minsheng Bank gradually lost its "king of micro and small enterprises" halo.

In 2020, when risks in real estate companies were concentrated, Minsheng Bank's loan loss provisions increased significantly by 18% year-on-year to 97.637 billion yuan, and profits plummeted by 36%, the largest decline among A-share listed banks.

Since then, Minsheng Bank has never been able to regain its vitality, with revenue and net profit showing no signs of improvement, while its PB (price-to-book ratio) has consistently ranked low among 42 A-share listed banks, closing at only 0.34 as of November 19.

However, at present, Liu Yonghao still chooses to believe in Minsheng Bank again.

Although profits are under pressure, Minsheng Bank's dividend yield remains high, ranking second among 42 A-share listed banks, reaching 8.32% as of November 19, second only to Nanjing Bank.

Moreover, Liu Yonghao has a preference for financial equity and has shared his experiences in integrating industry and finance multiple times, aiming to use finance as leverage to support the development of the real economy.

He once stated, "We are advocates of Minsheng Bank, and we have also established a data finance company, as well as invested in insurance and securities."

The official website shows that the "New Hope system" has invested in Minsheng Bank, Xinwang Bank, Minsheng Life, and Huachuang Securities.

Although Liu Yonghao mentioned in a conversation with Yu Minhong in 2021 that "I pay special attention to minimizing related transactions in the banks I manage, and I hardly take loans from Minsheng Bank."

However, under recent financial pressures, related transactions seem to be unavoidable.

In 2022-2023, the loan balances between Minsheng Bank and "New Hope system" enterprises were 855 million yuan and 2.732 billion yuan, respectively