Uni Core Holdings Corporation Plays the Capital Card on Agricultural Resources Distribution Channel: Shareholding of Prosperous Agriculture

SHENZHEN, China, April 15 /PRNewswire-Asia/ -- Uni Core Holdings Corporation (OTC Bulletin Board: UCHC; previously known as IMOT, referred to as "UCHC"), notes that a prominent Chinese financial media outlet, the 21st Century Business Herald, made a detailed report on April 2, 2010 on Prosperous Agriculture Limited Company (Referred to as "Prosperous Agriculture"), an incubation project of UCHC. The report reads as follows:

"The business volume of China's agricultural resources market exceeds more than RMB1 trillion a year, of which fertilizer accounts for about 70% of the total. With the support from the huge market demand and government policy, it builds an agricultural resources sales and distribution platform covering the rural markets across the nation which implies an enormous market and business opportunity." Wu Qiang, Deputy General Manager of Prosperous Agriculture said, during an interview by the reporter on March 31.

This prompted other agricultural enterprises to enter into the market to pursue the potential of the industry. After two years' well preparation, Prosperous Agriculture, known as the first national agricultural resources distribution chain operated with stock ownership, announced on March 25 that Shandong Mingshui Great Chemical Group, Shandong Luxi Chemical Co. Ltd. and Hubei EZhong Chemical Industry Co. Ltd. will soon join their PS model.

"Model of division of labor reduces our sales and market pressure." An insider, who asked not to be named, from Shandong Mingshui Great Chemical Group told the reporter on April 1, in fact, there are many similar domestic agricultural trade enterprises working on specialized channels, the company has lots of choices, currently it only entered into collaboration with Prosperous Agriculture.

That insider thought that, with the opening up of the qualification of fertilizer sales channel in 2009, the confused situation of channels intensifies the price war and the upstream production companies suffer significantly. At the same time, the entrance investment into large-scale agricultural trade channels further increase the costs.

"It's similar to the manufacturers of home appliances trying to enter into Gome and Suning, one large-scale regional channel business in the Northeast region has done so." The insider said.

PS Mode

Prosperous Agriculture called its sales and production segregation condition the PS Mode, that is, the manufacturers will be mainly responsible for areas such as product development, production, logistics, etc. and does not need to concern about issues relating to the markets; whereas Prosperous Agriculture will introduce series of products of the manufacturers to its national sales and distribution platform and is responsible for sales, management, sales planning and marketing covering the whole nation.

Wu Qiang indicated, taking into account own resources of the agricultural industry; transportation radius limit, and the actual situation of the regional brand recognition, etc., the PS Mode launched by Prosperous Agriculture can then be approved by the upstream enterprises. "Source of profits mainly comes from the credit period of the upstream enterprises, market promotion expenses support and the price difference gained from after contacting a certain number of distributors. Over time, we are prepared to depend on the sales commission income gained by the total sales.

According to Wu Qiang, Prosperous Agriculture has already made profits. He claimed that Prosperous Agriculture achieved sales revenue of over RMB30 million in 2009 and the sales revenue already exceeded RMB100 million in the first quarter of 2010, "We expect to achieve at least RMB400 million in 2010".

He believes that this can replace the current loose alliance between the agricultural fertilizer production enterprises and their wholesalers. "(Agricultural fertilizer production) enterprises have their own sales network, it is a simple wholesale relationship." Someone from the Hubei EZhong Chemical Industry Co. Ltd. claimed that the Company's own channels are operating smoothly and does not want to comment if the cooperation with Prosperous Agriculture will, to a certain extent, reduce the autonomy of the Company against channels.

Wu Qiang thinks it is too early to talk about the conflict similar to Gome and Gree. Currently agricultural fertilizer production enterprises have not fully revealed these worries at this stage, after all, agricultural resources industry belongs is resource-based, with particularly high demand for mineral resources. It's only that upstream enterprises are not good at marketing, we in fact are interdependent."

He stressed that Prosperous Agriculture is stronger at the control of channels, which also reflects the professional cooperation of division of labor.

Chaos of Channels to be settled

"The price-cutting activities of channel distributors request agricultural fertilizer production enterprises to pay, this is in fact the current status of the situation."

The insider of Shandong Mingshui Great Chemical Group explained that after the issuance of "About the decision on further reforming the fertilizer distribution system" by the State Department in August 2009, the right to operate fertilizer business attracts more private capital to invest in fertilizer terminal channels, the consequence is the intensification of the price war, while the channel distributors request the manufacturers to pay for the business.

The insider expressed that the chaotic price war resulting from the reduction of the levels of channels is beneficial from the perspective of manufacturers; in addition, it is also the objective of the Government to support the "agricultural trade of Gome". In March 2009, eight ministries, including the Ministry of Commerce, National Development and Reform Commission, Ministry of Finance, and Ministry of Agriculture jointly issued a document, requesting greater efforts to promote the construction of agricultural distribution network, to improve the circulation system of agricultural resources, and to build an agricultural resources sales and distribution enterprise with over 10 billion sales in three to five years' time.

Taking into consideration the enterprises that have announced cooperation agreement with Prosperous Agriculture, their market shares are far from being able to influence the industry. For example, the 2009 sales of Luxi Chemical, one of its partner companies, is less than 10 billion, which only accounts for a very low portion of the one-trillion-market as mentioned earlier.

Wu Qiang explained that the main job of Prosperous Agriculture, since its establishment in June 2008, is to improve the network in the north of Yangtze River; to enhance the distributor service system; to study the Shaanxi "direct operation of township terminal" chain model, and to strengthen internal management capabilities and core competencies. These improvements led to the stronger cooperation with the upstream enterprises in the second half of 2009.

Wu Qiang acknowledges that, unlike the home appliances chain which has exclusive agency rights issues on new products, fertilizer products are not as complicated (that is, single Nitrogen, Phosphorus and Potassium as well as compound fertilizers of all three elements), it will return to the price advantage in order to stand out: "In the conventional categories of agricultural fertilizer products, as Prosperous Agriculture leads a large number of distributors and economies of scale in procurement, it therefore has the price advantage of agricultural fertilizer products against the distributors of other regions."

He also revealed the blueprint of the company's future. "The objective of Prosperous Agriculture is to build a chain sales and distribution platform in the agricultural resources industry, not just fertilizers, we want to firstly focus on agricultural fertilizer until this business is on track before taking appropriate opportunity to improve the product category." He was referring to areas including agricultural implements, seeds, etc.

Capital predators

The PS Mode of Prosperous Agriculture is recognized by UCHC, a NASDAQ OTCBB listed company, (OTC: UCHC).

According to information, UCHC is as an aggressive "company doctor" and "incubator" of mid- to large-size companies in China which is devoted to assisting companies with potential to grow as a leader in the respective industry. On December 23, 2009, UCHC announced the gradual acquisition of 51% equity from the three original shareholders of Prosperous Agriculture, including Wu Qiang.

The acquisition price is: Easeway Investment Limited (wholly-owned subsidiary of UCHC) will acquire 51% equity of Prosperous Agriculture in two stages by 11 million UCHC ("UCHC") shares.

Public Relations Department of UCHC told our reporter, there was quite a competition when acquiring Prosperous Agriculture. "There was a lot of attention from other investors when Prosperous Agriculture was preparing for the acquisition. Shenzhen City Branch Innovation Investment Group is the most active competitor. However, the cooperation did not materialize due to the departure of executive management."

The reason for this acquisition is because of the enthusiasm of the United States investors on Chinese agriculture stock. According to our reporter's statistics, the share price of China Agritech Inc. (NASDAQ: CAGC.O) was below US$7 in September 2009 and rose to US$24.86 on March 31 of this year; in the same period, the share price of Origin Agritech Limited (NASDAQ: SEED.O) rose from US$4 to US$9.99. Besides, the share price increases of China Green Agriculture Inc. (NYSE: CGA.N), China Organic Agriculture Inc. (OTCBB: CNOA), and AgFeed Industries, Inc. (NASDAQ: FEED.O) in the same period are all very substantial.

Furthermore, UCHC has already drawn up the cross-bet conditions on the profit targets of Prosperous Agriculture.

As per the 8-K document submitted to the U.S. Securities and Exchange Commission, UCHC requires Prosperous Agriculture to deliver a sales revenue of RMB600 million (approx. US$88 million) and a net profit of at least RMB48 million (approx. US$7 million) in 2010; a sales revenue of RMB1.4 billion (approx. US$200 million) and a net profit of at least RMB110 million (approx. US$16 million) in 2011, a sales revenue of RMB3 billion (approx. US$440 million) and a net profit of at least RMB240 million (approx. US$35 million) in 2012.

If Prosperous Agriculture is unable to achieve 50% - 100% of the annual net profit target, "Per each 10% of the unaccomplished net profit target of each respective year, UCHC will deduct 10%, in line with the ratio, of the UCHC shares to be given to the original shareholders of Prosperous Agriculture according to the agreement."

Wu Qiang expressed that Prosperous Agriculture have to complete the goal of spin-off listing in 2012.

About Uni Core Holdings Corporation

Uni Core Holdings Corporation (stock symbol: UCHC) was founded in the USA in September 1998 under the name of Intermost Corporation and it was the first Chinese Internet company listed on the US OTC Bulletin Board in December 1998. Uni Core Holdings Corporation changed its name from January 29, 2010 and evolved into a new business strategy, acting as "company doctor" and "incubator" of mid- to large-size companies that have good potential and profitable products in the market, which are desperate for help from experts who can help them grow by assisting them in obtaining public or private financing in China, including company diagnosis services; consulting services; mergers and acquisitions; incubating; raise fund or financing; assistance to get public listing for mid- to large-size companies, etc.

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