In fact, the difference is still quite large!
From the total asset profit margin (%), profit margin from main business (%), net profit margin from total assets (%) and many other indicators, Hengrui Medicine is much stronger than Fosun Pharmaceuticals, East China Pharmaceuticals!
And, Hengrui Medicine is mainly based on anti-tumor, anesthesia, imaging, and other revenues.
Among the anti-tumor drugs: stomach cancer, breast cancer, pancreatic cancer, lung cancer.
China's top five cancers: lung cancer, breast cancer, stomach cancer, colon cancer, liver cancer.
And so on.
Arguably the core of world medicine!
And we can see from the comparison of R&D.
Hengrui Medicine's R&D investment is much higher than other pharmaceutical companies.
The market will be bigger with it.
More importantly!
In terms of status, many firsts in the history of China's pharmaceutical industry have been born in the body of Hengrui Medicine:
The first Chinese pharmaceutical enterprise to sell injections to the United States and the European Union;
The first enterprise to transfer innovative biological drugs to foreign countries;
The first place in the domestic market share for antitumor drugs and surgical drugs.
Finally, from the perspective of the technical indicators of ROE:
Hengrui Medicine has always maintained an ROE indicator of more than 20%;
while Fosun Pharmaceuticals' annualized ROE is only 12%;
Therefore, if you look at it comprehensively, the gap is naturally not small, and besides, the people have already gone out of the main ascending wave, and by the funds of the embracing group. The trend of East China Medicine and Fosun Pharmaceuticals is relatively much weaker, the main ascending wave trend is not strong!
There are two factors that determine a company's market capitalization.
According to the formula of market capitalization = net profit * valuation, the impact of the market value of the enterprise is only related to net profit and valuation.
Let's take a look at the net profit between the three.Hengrui has a 2019 revenue of 23.289 billion and a net profit of 5.328 billion.
Fosun Pharma has a 2019 revenue of 28.5 billion and a net profit of 3.3 billion.
East China Pharmaceutical has 2019 revenue of 35.4 billion and net profit of 2.8 billion.
With about the same size of revenue, Hengrui's net profit is the largest, almost the combined net profit of Huadong and Fuxing.
In the first factor affecting the market value of the net profit of this piece, Huadong and Fuxing have lost.
The second factor that affects market capitalization is the price-earnings ratio
The price-earnings ratio reflects the mood of the market. In general, the market will give a high valuation to companies with development potential, large growth space, and high investment in research and development. Let's take a look at the scale of R&D investment and the percentage of revenue for the three companies in the last five years.
From the chart, it is easy to see that in the R & D expenses, Hengrui is almost crushing Huadong and Fuxing.
The ability to invest in R&D on a large scale and in a large proportion can ensure the competitiveness of the enterprise and is the driving force of the future development of the enterprise.
Only then will the market give a high valuation.
As of the third quarter of 2020, Hengrui's static price-earnings ratio was 90 times, Huadong was 16 times, and Renaissance was 45 times.
Finally, the factors affecting a company's market capitalization are only related to net profit and valuation, and cannot be based on the size of revenue alone.
This actually can not look at the revenue of , the stock market value of the high and low should look at the profit and valuation, from the perspective of profitability is the market to give the stock's future earnings expectations, profit and revenue are lagging indicators, the stock market trading is actually the market for the stock's future earnings expectations.
First of all, from the point of view of return on equity (ROE) to analyze, Hengrui Pharmaceuticals ROE of 16%, Fosun Pharmaceuticals ROE of 7.52%, Huadong Pharmaceuticals ROE of 17.61%. Then look at the debt ratio East China Pharmaceutical's debt ratio is 39%, Fuxing Pharmaceutical's debt ratio is 50%, and Hengrui Pharmaceutical's debt ratio is only 12%. Simply look at the high return on equity of Hengrui Medicine rely on their own operations, while East China Pharmaceutical and Fuxing Pharmaceutical return on equity has a large part of the credit is leverage.
From the valuation point of view, even if the market gives the same valuation as Fosun Pharmaceuticals, Hengrui Pharmaceuticals, East China Pharmaceuticals ( of course, this is certainly not possible ). Then market capitalization = profit * valuation, Let's look at the last 3 years 2017, 2018, 2019 Hengrui Medicine's profits were 3.2 billion, 4 billion, 5.3 billion, Fuxing Medicine 2.3 billion, 2.0 billion, 2.2 billion, Huadong Medicine 1.7 billion, 2.2 billion, 2.5 billion. Therefore, even if the same valuation is given to Hengrui Medicine, East China Medicine and Fosun Medicine, Hengrui Medicine is still the largest.
From the valuation point of view, the market is not likely to give the same valuation with the three, one is not the same as the future imagination of the three, and then from the historical performance point of view of Hengrui's growth is also higher, and three from the foreign pharmaceutical industry growth path, the future production of innovative medicines for the future of the enterprise market capitalization growth Space is also the largest. Therefore, the market will give more space for future imagination, higher growth, already have mature market experience of innovative drugs higher valuation. At present, the dynamic PE valuation of the three also support this point of view, as of February 20, 2021, Hengrui Medicine's dynamic PE of 98 times, Fuxing Medicine's dynamic PE of 37 times, East China Pharmaceutical's dynamic PE of 17 times. From the point of view of the relative valuation of the pharmaceutical industry, it is definitely undervalued by East China Pharmaceuticals, but you can't look at stocks from the absolute PE valuation, and if you follow this logic, then the valuation of banks, real estate, and insurance is even lower.
From the main business point of view, Hengrui Medicine's main business for antineoplastic drugs, anesthesia, contrast agents, etc., and the gross profit of the products are more than 75%, and the main income of anticancer drugs, the gross profit margin of up to 93%. Fuxing Medicine's products are relatively more diverse, accounting for its main revenue of non-high margin anticancer drugs, but anti-infective and digestive-related drug products, which also has raw materials drugs, its gross profit margin of only 27%, a relatively large number of products and gross profit margins varying, which will pull down the overall gross profit margin. Finally, East China's pharmaceuticals accounted for the largest proportion of revenue since the commercial, surprise surprise, pharmaceutical companies do not do drugs do commercial, commercial gross profit margins since only 7.58%, even if the other pharmaceuticals and medical gross margins in the high, and its overall gross profit margins are certainly the lowest of the three.
Finally, the national policy and related industry dividends, the bandwagon purchase affects a lot of pharmaceutical and medical device companies. However, the state is sparing no effort to encourage and support innovative drugs. In addition to the concept of domestic substitution and the future of population aging, the research and development of innovative drugs ushered in the double stimulus of demand and policy, as China's innovative drug research and development strength of the strongest leading enterprises, Hengrui medicine, especially the unique scarcity and irreplaceability. The main product of diabetes oral medication itself faces a lot of competition from alternative products, the layout of the medical beauty of the company's future may have a certain drive, but the current market is facing the leading Huaxi biological, love the competition of the American.
Finally, from the point of view of profit, Hengrui's profit is the highest. From the valuation point of view, Hengrui has a high growth, sustainable, strong certainty , in the superimposed population aging and domestic substitution policy double stimulus, the market is more willing to give its higher valuation. From the perspective of industry competition, Hengrui as a domestic innovative drug research and development leader, a variety of product research and development has entered clinical trials, follow-up product volume is rich. Anti-cancer drugs originally technical barriers are relatively high, determining its high gross margins, and once the product is approved for listing, can realize rapid volume. In the case of relatively high earnings, and the market gives a higher valuation than the other two companies, the market value is higher than the other two is a very normal and reasonable situation.
A long position in East China Pharmaceuticals, with low valuation and year-on-year profit growth.
Revenue is almost the same does not mean profit will be almost the same, profit is almost the same does not mean profit composition is almost the same.
Market capitalization represents, to some extent, the market's expectation of the future of the listed company, a psychological expectation. That's why there are certain companies with exceptionally high P/E ratios, and certain companies with single-digit P/E ratios. So, under the same circumstances, the higher the market expectation of a company, the larger the market capitalization will naturally be.
And what affects market expectations? That is the future space. This future can be seen from the composition of profits, first of all, Fosun Pharmaceuticals:
Fosun Pharmaceuticals revenue composition, in large part because of its pharmaceutical business. It holds a 50% stake in Sinopharm Holding, and its financials will naturally be consolidated, so a large proportion of Fosun's revenue is the Sinopharm Holding's pharmaceutical business, which doesn't make any money. Although the pharmaceutical business revenue is very large, but the gross margin is too low, the competition is also relatively fierce, the growth is also very weak, naturally, will not give too high a valuation.
East China Pharmaceutical is not much worse, the proportion of pharmaceutical business in its revenue is too high. Gross margins are less than 8%. And Huadong medicine production of drugs, generic drugs accounted for a large proportion. With the deepening of the health insurance reform, the profit of generic drugs will gradually decrease, and almost completely become pharmaceutical industrial products. China's pharmaceutical companies lying on the dividends of generic drugs is too comfortable, there is no intention to do innovative drugs, generic drug profits than the original drug is higher. And the god operation of Huadong Pharmaceuticals can simply be described as arrogance. In the collection, as the original drug manufacturers of acarbose, the reported price is 0.18 yuan / piece; green leaf reported 0.32 yuan / piece. And as a generic drug East China Pharmaceutical, surprisingly reported 0.47 yuan / tablet, 161% higher than the German Bayer!!!! In the end it was naturally impossible to make the cut. East China Pharmaceutical in their own core products were swept out of the game, so the stock price began to fall to make up for the rest. But at its core, it also lies in the long-term enjoyment of the generic dividend, not enough attention to the original research drugs. When the generic dividend is no longer, revenue and profit will naturally be hit hard.
The difference is that Hengrui Medicine, Hengrui Medicine, although there are also many generic drugs, but its revenue is more reasonable. Its three main products anti-tumor drugs, anesthetics and contrast agents, anti-tumor drugs and contrast agents, although there is also a large proportion of generic drugs, but there are also many original drugs, anesthetics belong to China's 1 class of controlled drugs, is not currently involved in centralized procurement. And Hengrui medicine in the research and development of particularly willing to invest, only the first half of the research and development investment is as high as 1.8 billion, while the same period, East China pharmaceutical research and development costs is 479 million, almost just a quarter of Hengrui medicine research and development costs. In such a huge gap, the new drug listing speed natural gap is even greater, investors naturally more optimistic about Huadong.
To summarize, stock investment is the future. East China Pharmaceutical and Fosun Pharmaceutical both from the gross margin or growth, and Hengrui Pharmaceutical have a big gap. Even if the difference in revenue is not large, but because of the different composition of the revenue, the profit is naturally more different, and finally lead to a big gap in its market value.
Because of the collection, generic drugs have no future, Huadong medicine transition road late.
Above the R&D revenue we can find Fosun's revenue in these years has been far ahead of Hengrui, Huadong. Why is the total revenue so high net profit but not as much as Hengrui? Fosun used in the advertising and promotion of the most, used in advertising on 5.5 billion per year! Fosun medicine has been in the innovative medicine promotion layout, in order to grab the market! The future revenue expansion efforts, beyond Hengrui become innovative drug leader is not a dream. The future can be expected! Fosun is relatively dependent on mergers and acquisitions, mergers and acquisitions can increase performance in the short term, but its more than fifty holdings or participation in the company has also led to goodwill soaring all the way, Wanda's transformation revitalization should learn from! No matter how to analyze, efforts to change the company is worth investing in, we all hope to buy their own stock soaring, but we still need to look at the market recognized not! The only strong market recognition is to deliver a satisfactory answer.
East China Pharmaceutical revenue is high, but most of the pharmaceutical business. A small portion is pharmaceutical R&D and manufacturing. Most of the revenue comes from low gross margins of pouring drugs, valuation certainly not go up.