By Gao Yi
Support: Yuan Chuan Institute of Pharmaceuticals
In July, the stock price rose all the way to the market value of more than 500 billion, Hengrui's "pharmaceuticals," the name is playing more and more loud.
However, there is such a pharmaceutical listed company, revenue is more than eight times that of Hengrui Medicine, but the market value is only 10% of Hengrui Medicine, think about it is also a little bit suffocating, this company is the first in the country in terms of annual sales, in 2018, the leading party in the history of China's pharmaceutical business writing the largest merger and acquisition case - Shanghai Pharmaceuticals. Shanghai Pharmaceuticals.
As of July 30, the market value of Shanghai Pharmaceuticals is only 58.3 billion, and many times struggling still failed to stand above 60 billion. The same is the pharmaceutical industry giant, Shanghai Pharmaceuticals in fact can not kill a world in the A shares?
Shanghai Pharmaceuticals was listed on the A-share market as early as 1994, and its main business covers the whole industry chain of pharmaceutical research and development and manufacturing, distribution and retailing, and is a sample stock of the Shanghai-Shenzhen 300, which can definitely be said to be a giant in the industry. Formerly known as Shanghai No. 4 Pharmaceutical Factory, the company was founded in 1866 and has a history of more than a century. The company is an A+H listed company, the controlling shareholder is SIIC, and the actual controller is Shanghai State-owned Assets Supervision and Administration Commission (SASAC).
As the core platform of SIIC's big health industry, the company's main business is divided into pharmaceutical industry and pharmaceutical commercial distribution, with industry and commerce going hand in hand. Its holding company covers seven directions: biological preparations, chemical preparations, chemical raw materials, proprietary Chinese medicines, Chinese herbal medicines, medical devices, distribution and retail, and has set up joint ventures with Roche and Schweppes, etc. The layout of its subsidiaries is extremely extensive.
From the gross profit structure, the pharmaceutical distribution business mainly contributes to the vast majority, has accounted for 80%, but the performance of the pharmaceutical industry sector is not bad, in recent years has been maintained in the gross margin of more than 50%, accounting for a low proportion of just because of the distribution business is too large, the industrial sector of the drug industry sector has nearly 20 billion in revenues, and most of the brand-name drug companies can be pulled out of a single comparison.
In the pharmaceutical distribution sector, Shanghai Pharmaceuticals has been one of China's pharmaceutical distribution industry "three giants", under the influence of the two-ticket system, the pharmaceutical industry to the leading concentration of the trend is obvious, the three leading pharmaceutical distribution continued to carry out mergers and acquisitions integration.
In the context of the difficult to improve the hospital payback, the cost of capital has become a major constraint on the future of the pharmaceutical circulation, the leading companies are expected to rely on multi-channel financing capabilities to further enhance the competitive advantage.
Industrial plate products mainly focus on the digestive system and immune metabolism, cardiovascular, systemic anti-infective, psycho-neurological and anti-tumor five major therapeutic areas, the year-round production of more than 800 varieties, more than 20 types of dosage forms, through their own distributors, agents of the sales channel basically to achieve the majority of the country's hospital terminals and retail terminals to the extent that it reduces the operating costs. The cost of operation has been reduced to a certain extent.
ShangPharma's retail business has a long history, with a number of well-known pharmacy brands under its umbrella, which have a good reputation and market share.
In terms of scale, the company's scale is at the forefront of the national drug retail industry, with a total of more than 1,892 retail pharmacies distributed in 16 provinces, autonomous regions and municipalities across China as of 2017, including 1,247 directly-managed stores, and its Shanghai Hua's Pharmacy and Lei Yunshang are among the pharmaceutical retail companies with the most pharmacies in East China.
In recent years, the retail industry has gradually entered a phase of "horse racing", prompting the valuation of traditional pharmacies such as Old People's Pharmacy and Dashenlin to rise. In addition to national expansion through mergers and acquisitions, Shanghai Pharmaceuticals has focused on East China, concentrating on innovative businesses, including hospital supply chain management (SPD), pharmacy trusteeship, direct delivery of high-end medicines (DTP), and the distribution of vaccines and high-value consumables.
As of last year, Shanghai Pharmaceuticals has a modern drug distribution system with a direct network covering 24 provinces and cities across the country and a high degree of intensification and informationization.
Since 2009, Shanghai Pharmaceuticals' operating income and net profit have been growing steadily. Its net profit is a 10-year increase of 22.59 times. 2015 to 2019, the company's operating income exceeded 100 billion yuan for five consecutive years, reaching 186.566 billion yuan in 2019, running towards the 200 billion yuan mark.
And compared to the performance results of the past year, Shanghai Pharmaceutical Company, 2019 interim report, 2019 three-quarterly report, 2019 annual report revenue of 92.575 billion, 140.617 billion, 186.566 billion yuan, the growth rate of 22.00%, 19.57%, 17.27% respectively. Such bright data, the stock price has been sideways.
From the PE point of view, the pharmaceutical industry in recent years has been the existence of the market is sought after, especially the epidemic under the quotes rose, the PE of the pharmaceutical industry all the way up. Part of the market popularity of the star enterprise PE has exceeded two hundred, the current PE industry average has been nearly one hundred. And the PE of Shanghai Pharmaceuticals, only embarrassing less than 15.
Even if the scope is narrowed to the pharmaceutical business industry due to poor growth capacity PE is relatively low, Shanghai Pharmaceuticals PE is still the penultimate level.
The industrial sector alone is worth more than $2 billion in profit, with a growth rate of more than 20%, and if it is simply an industrial company with an ordinary R&D pipeline, at a PE of slightly less than the expected market average of 30 times in 2021, Shanghai Pharmaceuticals is worth more than $60 billion in the industrial sector alone.
Plus a national second commercial circulation plate, more than 2 billion in profits, according to the 2021 expected market average value of 14 times the PE, that is also 28 billion, adding up to break the 100 billion is also 80 billion, Shanghai Pharmaceuticals is now less than 60 billion of the market value of the market value of the seemingly mind-boggling.
Is Shanghai Medicine lack of storytelling ability?
In recent years, innovative drugs are on fire, the valuation of the relevant companies have also risen, the Shanghai Pharmaceuticals in the research and development of this piece is not as good as the Hengrui Tianqing, but it is also in the step-by-step follow-up.
Shanghai Pharmaceuticals invested 1.509 billion in 2019, with a R&D ratio of 6.42%, which is already significantly higher than the industry average of 874 million. The investment in R&D expenses in the first quarter reached 341 million yuan, up 25.93% year-on-year, which shows that Shanghai Pharmaceuticals is very willing to spend money on research and development.
In terms of circulation business, Shanghai Pharmaceuticals focuses on business innovation model exploration, and actively utilizes cloud computing, big data and other modern information technology to continue to innovate business model transformation and upgrading. The company's cloud of health, the market value of 300 billion yuan of Ali Health, has launched a comprehensive B round of financing. In this epidemic, the Shanghai Pharmaceuticals cloud health e-prescription platform, but also in the fight against the epidemic in the repeated power.
So many "innovative" concepts, although the solution to the problem is far less urgent than the vaccine, but it is also everywhere for the domestic problem of pain points. Shanghai Pharmaceuticals is like an iron tree that can't produce new flowers, and has been abandoned by the northbound funds, so Shanghai Pharmaceuticals is buried in those hidden dangers, and the gap between Hengrui and where it is?
2019 cash flow inflow from operating activities, cash outflow from investing activities, cash flow outflow from financing activities. It looks like a cow business cash flow, but with negative cash and cash equivalents in FY19 and given that it was raising money in FY18 and FY17, Shanghai Pharma will need to be funded at any time from the cash flow statement.
Before 2018 the company's revenue and non-deductible net profit growth rate declined year on year, the year of mergers and acquisitions to achieve 159.084 billion yuan, a year-on-year growth rate of 21.58%, non-deductible net profit of 2.652 billion yuan, but the year-on-year growth rate of -6.80%, the mergers and acquisitions business does not support growth. However, in 2019, Shanghai Pharmaceuticals gradually recovered its vitality, and the bottom line was full, and the non-deductible net profit was improved by 30.49% year-on-year.
But the "side effects" of mergers and acquisitions have also been highlighted, Shanghai Pharmaceuticals is facing a substantial increase in goodwill. 2018 increased 4.738 billion of goodwill, a year-on-year growth rate of up to 71.72%, and goodwill impairment of up to 632 million that year;
and Things are far from over, in 2019 because a subsidiary involved in health care products performed less than expected, direct goodwill impairment of 705 million. Therefore, in 2019, although Shanghai Pharmaceuticals in the 130 pharmaceutical companies in the first revenue, goodwill impairment is also the highest, take the road of annexation of Shanghai Pharmaceuticals is some "can not eat".
And as a comparison, the goodwill of Hengrui Medicine, has been zero.
This is the Shanghai Pharmaceuticals compared to Hengrui most criticized place - rely on mergers and acquisitions to achieve less than 10% growth rate, while Hengrui's endogenous performance growth is stable in the 20% to 30% or so.
M&A, in addition to bringing water to the results, also puts pressure on the company's cash flow, which reveals the root of the cash flow statement problem earlier. M&A has significantly increased Shanghai Pharmaceuticals' gearing ratio, adding a large amount of short-term borrowing and long-term borrowing in 2018 and 2019, which has increased the company's debt servicing risk to a certain extent.
Hengrui Medicine has always been known as "no debt", the debt ratio is very low, 2004 to date, no year more than 15%, in recent years has been maintained at about 10%, belonging to the stock market in the listed companies with low debt ratio.
From the revenue data of each business segment in 2019, the company mainly operates distribution business, but the gross profit margin is only 7.03%, while the gross profit margin of the industrial segment, which accounts for a relatively small proportion of the gross profit margin is as high as 58.56%; however, the level of gross profit margins of both distribution and industry are going up year by year, and the proportion of revenue of the industrial segment has also been increasing year by year by 9.83% in 2016, rising to 12.08% in 2019, which in turn drives the overall gross margin to rise.
However, compared with Hengrui's long-term gross profit margin of more than 80, it is dwarfed. Shanghai Pharmaceuticals, whose main business is pharmaceutical trading and distribution, seems to have a long way to go to catch up with the height of innovative drug leader Hengrui.
Shanghai Pharmaceuticals rose to prominence in 2008, much earlier than many domestic pharmaceutical companies.
Before 2008, Shanghai Pharmaceuticals, because of the debt crisis of the Huayuan Group, has been stuck in a state of "no master", no chairman, no management. Until 2008, the Shanghai Municipal State-owned Assets Supervision and Administration Commission (SASAC) to take ownership of the drug, investment banking Lv Mingfang as chairman of the Board of Pharmaceuticals, the drug began to go uphill, which also laid the drug has been to take the route of mergers and acquisitions of the general trend.
Unfortunately, the famous general who saved the day stayed less than three years because of "human" reasons and left.
Mergers and acquisitions are indeed a necessary path for pharmaceutical companies to become bigger and stronger, but large multinational pharmaceutical companies can ultimately buy and buy the premise that there is a strong base of business mutual support and cooperation, Pfizer has a layout of the global sales team, which is why it bought Wyeth and Farmacia, Merck Sharp & Dohme is the head of the market in the therapeutic areas of the acquisition of the merger and acquisition of Schering-Plough.
Shanghai Pharmaceuticals distribution business scale is indeed substantial, but the industry into the degree of low (just a delivery of express delivery), low technical barriers, low gross margin is an indisputable fact, the largest piece of business how to go and the newly bought in-depth cooperation, is the drug is a problem to consider.
But the good point is that the distribution business of Shangpharma because of the layout of the early, and currently can provide a stable cash flow, which makes the company's financial situation will not appear in a short period of time, the Shangpharma has plenty of space to continue to trial and error. So you can see that ShangPharma has also been actively catching up with the momentum of innovative drugs in recent years, although a little late but not too late.
Therefore, when the various business models under ShangPharma become clearer, it will be a big growth point for ShangPharma.
Secondly, one of the major criticisms of state-owned enterprises is that they are not sufficiently market-oriented, and the management, with a few million in fixed salary per year, may be full of concern about the market value, which affects the operation of the company. But at the end of 2019, Shanghai Pharmaceuticals officially opened the first round of the equity incentive program, nine executives and 201 company backbone, **** divided into 28,341,000 shares of options. When you enjoy the stock dividend, you get a second one. This is a big driver of the company's growth.
Look forward to Shanghai Pharmaceuticals being able to set the clouds in motion.
Risk warning: market risk, investment should be cautious. The views expressed in this article do not constitute any guarantee of market trends, and historical performance does not guarantee future performance. The industry mentioned does not constitute any recommendation, the foreign market and individual stocks for reference only.