Gifore Ranked First in Growth among the GEM Listed Companies


Wang Xinming, an over-twenty-year-old entrepreneur from Chengdu and President of Gifore, first operated agricultural projects with the asset-light business mode that was used in the early development of Gome and Suning, two big electric appliance groups in China. The financial index disclosed by the 28 GEM listed companies showed that Gifore has ranked first because its annual compound growth rate of operating profit among 2006 to 2008 reached 338.33%. In terms of the rate of the revenue in recent three years, Gifore reached 55.41%, higher than 34.03%, the average value of the 28 companies.

To invest in agriculture requires not only financial support, but also excellent service systems. The annual sales amount of China’s agricultural machinery market was over 200 billion yuan, but Gifore was less than 1 billion yuan. In future, Gifore would expand more markets and introduce more local dealers to share growth earnings.

A. The road of venture

From agricultural machinery promotion departments to entrepreneurs

When coming to Chengdu Modern Industrial Park, you will be attracted by the yellow walls of Gifore’s headquarters. Several years ago, the place was a wasteland, but now has been towered a modern park of agricultural machinery which are sold all over the country through chain stores. In recent two years, the average sales amount of agricultural machinery has reached 460,000 sets and clients 410,000.

 “Since the inception ten years ago, we have worked very hard and suffered a lot,” said Wang Xinming.

In 1985, Wang Xinming worked at Sichuan Agricultural Machinery Administration Bureau and acted as Head of Sichuan Agricultural Machinery Promotion Department. On December 8th, 1994, he set up Sichuan Gifore Agricultural Engineering Co., Ltd. (Gifore Agricultural, the former of Gifore) with a registered capital of 300,000. He took over 11.67% of shares by investing 35,000 yuan, and Sichuan Agricultural Machinery Association, 66.66% of shares by investing 200,000 yuan, as the biggest shareholder.

Afterwards, its shareholders changed some times. On December 1st, 1997, Wang Xinming transferred all shares and took over Gifore Agricultural as President and General Manager, began to enter into agricultural machinery distribution sector and set foot in agricultural machinery chain store operation.

He and his wife became shareholders until 2003. Data shows that 28 natural person shareholders, including Wang Xinming and his wife Wang Hongyan, increased 1.6449 million yuan to Gifore Agricultural, among which, Wang Xinming and his wife were the largest capital contributors and became the third and fourth biggest shareholders by transfer and capital increase. The company also developed fast in the following six years under the leadership of Wang Xinming, which was the admitted controller. In 2007, Jikang Agricultural Machinery transferred its shares of Gifore Agricultural to Wang Xinming. Hence, he and his wife held 52.77% of the shares. In early 2008, Gifore Agricultural was changed to a limited liability company named Gifore Agricultural Machinery (Gifore).

Inspired by the listing of Suning and Gome

While running his business, Wang Xinming has been thinking about how to expand agricultural machinery industry in a new mode. Small scale, scattered management, weak strength and limited resource are the reflection of China’s agricultural machinery distribution sector currently. Although the annual sales amount of China’s agricultural machinery market reached over 200 billion yuan, there were no companies can lead the industry. 

Several years ago, the listing of Gome and Suning impressed Wang Xinming a lot. Afterwards, he searched all materials related to the two listed companies, learned chain operation from universities and planed to apply their business mode into agricultural machinery distribution industry.

Ge ZHENG, Gifore’s Director and Deputy General Manager responsible for capital operation, said that Gifore was commissioned to sell agricultural equipment and related products and its chain operation mode could solve the problems of disordered competition, fake and inferior products and poor sale services and guarantee in agricultural machinery distribution industry due to its features of centralized purchase, unified delivery and standardized services.

In recent three years, Gifore has maintained rapid growth thanks to its business mode. “In 2005, the total and net assets of Gifore were about 50 million yuan and 8 million yuan. However, by the end of the first half of 2009, the two figures have reached up to 676 million yuan and over 100 million yuan,” Ge ZHENG said.

Venture capital helps to break financial bottlenecks

Ge ZHENG revealed that growing companies in fast development and expansion like Gifore needed money than anything else. It would take Gifore about one million yuan to open a chain store in second-tier cities and considerable amounts to form scale effects. At the inception, Gifore needed at least one million yuan as the liquid capital and got its first loan in 2005 after years of accumulation. He said financial problems were very common for SMEs during that time.

From 2008, the situation has changed. Gifore has been in the first place in terms of the market shares in China, and it planned to expand more markets based on external capital. Jiuding Capital, China’s PE firm, began to contact Gifore in the fourth quarter of 2008. Jiuding Capital’s investigation team took several months to investigate its business areas and visited insiders and outsiders. After a half year of investigation and communication, both two companies reached cooperative agreements and the investment to Gifore got approved in Jiuding Capital’s project-decision meeting in March finally.

 “Previously, we could only open about 10 stores a year. In 2008, we opened 31. After being funded, we will open 38 in 2009,” said Ge ZHENG. VC investor was very helpful for Gifore that planned to apply the funded capital into the construction of information systems and chain stores after being listed.

A great number of shareholders create great wealth

By the end of June 30th, 2009, Gifore has 59 direct and indirect holding subsidiaries and 4 joint stock companies. How to manage so many companies? Wang Xinming thought share incentive mechanism was very crucial and helpful. On one hand, more than 80% of executives or core workers of its subsidiaries held corporate stocks directly or indirectly so as to be able to share the benefits of the company; on the other hand, Gifore wholly or absolutely controlled subsidiaries by acquiring the stock rights of store managers and increased its holding proportion to enhance its controlling ability, promote its chain strategy and control manager-above core administrative staff of chain stores.

Actually, Gifore has the largest number of natural person shareholders (more than 80 shareholders) among the 28 GEM listed companies. Ge ZHENG said the top executives in Gifore and chain stores all hold stocks. It’s been confirmed from the prospectus that Gifore opened subscription rights of new shares at the price of 1 yuan/share to its manager-above administrative personnel in Sichuan and Chongqing in February 2008, sharing benefits commonly among all shareholders.

In addition to Wang Xinming and his wife Wang Hongyan, other 83 natural person shareholders held 30.137 million shares (per capita holdings of 360,000 shares) with an offering price of 17.75 yuan. The average worth of a shareholder would exceed 6.4 million yuan and the worth of the actual controller Wang Xinming and his wife would exceed 350 million yuan if calculated at the offering price.

B. Conversation with Ge ZHENG

Our wealth has been clearly calculated by outsiders

Reporter: Since when do you prepare to be listed?

Ge ZHENG: In fact, we have been prepared to be listed on the GEM from 2007. We did it and can think about our future strategies with the help of capital.

Reporter: Gifore has the largest number of natural person shareholders among the 28 GEM listed companies, which will cause wealth effect. What’s your opinion about wealth growth?

Ge ZHENG: President Wang has been diluting his shares and created a common benefit community to build a common platform. When we increased capital and expanded shares, we opened subscription rights to our administrative staff and core workers to motivate them, but I don’t know the number of millionaires or multimillionaires, which have been clearly calculated by outsiders. However, our stocks are locked within a period, which can become wealth if we keep high growth. Based on our goals, it’s estimated that we can keep a high growth in 2009.

Reporter: Whether the higher PE ratio of GEM companies has overdrew their growth space?

Ge ZHENG: I think the first 28 GEM listed companies will be polarized. The potential companies will get better and have bigger development spaces.

Reporter: What can Sichuan’s venture enterprises learn from you?

Ge ZHENG: I think we can give them some advises, namely to communicate with investors actively. You know Chengdu is narrowing its gap with coastal cities in finance.

Reporter: Chain operation is easy to achieve. What would you do if your mode is simulated by others?

Ge ZHENG: Gifore has become the No. 1 among the agricultural machinery industry. To invest in agriculture requires not only financial support, but also excellent service systems. The annual sales amount of China’s agricultural machinery market was over 200 billion yuan, but Gifore was less than 1 billion yuan. In future, Gifore would expand more markets and introduce more local dealers to share growth earnings.

C. Gifore in the Eyes of VC

Jiuding Capital is the biggest winner among the PEs invested in Sichuan enterprises, which hold a share of 9.32 % of Gifore as the second biggest shareholder. If calculated at the offering price of 17.75 yuan, Gifore has earned profits of almost 100 million yuan. Yesterday, Lei CAI, Executive President of Jiuding Capital, accepted our interview and talked about Gifore in her eyes.

West China City Daily: How do you make the decision to invest in Gifore? What impressed you most?

Lei CAI: I think its president and team are totally different from others. They are far-sighted in market expansion and good at competing with counterparts. In addition, they know how to balance the competition and cooperation.

West China City Daily: What can you bring for Gifore?

Lei CAI: As a specialized investment firm, we can provide not only financial support, but also value-added services in public offerings, senior administrative team and ERP construction, market exploration and bank financing. As an active financial investor, we are glad to provide added-value services for investees and become their value creator instead of value sharer.