"Eat" Xiangzhong Pharmaceutical What is the intention of China Resources Shuanghe

China Resources Shuanghe announced on the evening of August 10 that the company obtained 40.65% of the equity of Hunan Xiangzhong Pharmaceutical Co., Ltd. through the Hunan Stock Exchange for 130 million yuan. After the completion of the transaction, the company held a total of 85.65% of the equity of Xiangzhong Pharmaceutical, and the scope of the company's consolidated statements changed.

China Resources Shuanghe became the largest shareholder of Xiangzhong Pharmaceutical, what is its intention to acquire Xiangzhong Pharmaceutical? Where does the sword of Xiangzhong Pharmaceutical belong?

Layout of specialist business Drop sub-psychiatric specialist

In recent years, the business structure of CR Shuanghe has been deployed around "1+1+6", that is, a platform for general medicine for chronic diseases, an infusion business platform for cross-disciplinary departments, and six specialty business areas (cardiovascular and cerebrovascular, pediatric, nephrology, psychiatry/neurology, anesthesia analgesia and breathing). Among them, the six major specialty areas have become the main battlefields of the layout of China Resources Shuanghe.

Xiangzhong Pharmaceutical was established on March 5, 1998, the main products for anti-epileptic, anti-manic prescription drugs - magnesium valproate sustained release tablets, magnesium valproate tablets, sodium valproate tablets, valproamide tablets, the acquisition of Xiangzhong Pharmaceutical, drop psychiatric drugs, but also in line with the "1+ 1 + 6" layout plan of China Resources Shuanghe.

According to the 2017 annual report of China Resources Shuanghe, the sales of its infusion business platform were 2.318 billion yuan, the sales of chronic disease business were 237,400 yuan, and the sales of the specialty business platform were 534 million yuan. It can be seen that the scale of CR Shuanghe's specialty business does not account for a large proportion, but in 2017, the specialty business increased by 48% year-on-year, and the growth rate was relatively high.

The high growth rate of the specialist business platform is mainly due to its pediatric and nephrology business. In 2017, the sales revenue of CR Shuanghe Pediatric Drugs increased by 33%; the sales revenue of core product Keridol increased by 25% year-on-year; and the sales revenue of pediatric amino acids exceeded 100 million yuan, an increase of 50% year-on-year. In the field of nephrology drugs, it is an increase of 85% year-on-year, and the sales revenue of peritoneal dialysate, the core product, exceeds 100 million, achieving an increase of 81%.

The merger and acquisition of China Resources Shuanghe from Xiangzhong Pharmaceutical focuses on the weight of psychiatric specialty drugs, which has a certain role in promoting the further growth of its specialty business.

The anti-epileptic drug market is vast and the pattern is stable. Judging from the data of the sample hospitals, the terminal market of anti-epileptic drugs in China is about 5 billion yuan, and the growth rate is stable at about 10%. At present, the three mainstream drugs of sodium valproate, levetiracetam and oxcarbazepine account for 30%, 28% and 15% respectively, accounting for nearly 75% of the total. Magnesium valproate accounts for about 4% of the market and is the exclusive product of Xiangzhong Pharmaceutical.

Judging from the share of various drugs in previous years, the competition pattern tends to be stable. China Merchants Securities pharmaceutical industry research Team estimates that the largest share of anti-epileptic drugs sodium valproate terminal has a scale of about 1 billion, more manufacturers of production and sales, Sanofi's multiple sodium valproate preparations account for a total of about 65%, Xiangzhong Pharmaceutical market share is less than 1%. Judging from the market size and pattern of anti-epileptic drugs, Wu Bin's team can maintain a performance growth level of more than 15%.

The acquisition of Xiangzhong Pharmaceutical to obtain channel resources for psychotropic drugs will form synergy with Shuanghe's own psychiatric products. Xiangzhong Pharmaceutical's revenue in 2017 was 369 million yuan and its net profit was 14.95 million yuan. Among them, the exclusive product magnesium valproate sustained release tablets sales of 207 million yuan, a large scale, in addition to sodium valproate tablets also have a revenue scale of 66.84 million yuan. Through the exclusive product of magnesium valproate sustained release tablets, Xiangzhong has established a complete and mature marketing network, and it is estimated that more than 1,000 secondary and above hospitals will be covered during the estimated period. At present, Shuanghe's wholly-owned son Crus Secco's levetiracetam tablet ANDA has been approved by the US FDA, and was reported in May 2018 in China, and it is expected to be approved in 2019 as a consistency evaluation. As the second largest variety of anti-epileptic disease, SECCO's levoethyl piracetam tablets are expected to be rapidly increased through mature sales channels in Xiangzhong to promote the high growth of future performance.

The performance is not enough, mergers and acquisitions to make up

The acquisition of Xiangzhong Pharmaceutical not only improves the business layout of China Resources Shuanghe, but also provides strong support for the company's performance.

Hunan Xiangzhong Pharmaceutical's revenue of 290 million yuan in 2017 came from four anti-epileptic products (magnesium valproate sustained-release tablets, magnesium valproate tablets, sodium valproate tablets, valproamide tablets), after the acquisition of Xiangzhong Pharmaceutical by China Resources Shuanghe, the financial statements were consolidated, which will inevitably improve the company's performance.

Previously, China Resources Shuanghe has been on the road of mergers and acquisitions, and its performance is also rising.

On December 21, 2016, CR Shuanghe announced that its wholly-owned subsidiary, CR SECCO, intends to acquire 100% of the equity of Hainan Sinochem United Pharmaceutical Industry Co., Ltd. (hereinafter referred to as Hainan Sinochem) at a purchase price of RMB850 million, representing a premium of RMB610 million.

Hainan Sinochem's main products include Chinese and Western medicine raw materials and preparations, capsules, chemical raw materials, etc., as of December 31, 2015, the total assets were 416 million yuan, net assets of 323 million yuan, in 2015 to achieve operating income of 149 million yuan, net profit of 51.5 million yuan. As of July 31, 2016, Hainan Sinochem had total assets of 310 million yuan and net assets of 240 million yuan, and from January to July 2016, it achieved operating income of 90.03 million yuan and net profit of 32.85 million yuan.

According to the commitment of the transferor, the net profit of Hainan Sinochem in 2016-2018 is not less than 50 million yuan, 55 million yuan and 60 million yuan respectively.

On March 31, 2017, Hainan Sinochem Industrial and Commercial Completed the registration procedures for changing and renaming it as Shuanghe Pharmaceutical (Hainan) Co., Ltd. (hereinafter referred to as Hainan Shuanghe). Subsequently, Hainan Shuanghe was included in the consolidated statements of listed companies from the first quarter of 2017.

In 2017, Hainan Shuanghe achieved a net profit of 58 million yuan, while the net profit of China Resources Shuanghe was 843 million yuan, and the annual net profit increased by 128 million yuan year-on-year, and the annual net profit of Hainan Shuanghe accounted for 6.88% and 45.17% of the two, respectively.

Since 2018, the company has not stopped the pace of acquisitions:

China Resources Shuanghe announced on the evening of June 4 that the company intends to acquire 40% of the equity of China Resources Shuanghe Limin Pharmaceutical (Jinan) Co., Ltd. for 848 million yuan. After the completion of the acquisition, the company will hold 100% of the equity of Shuanghe Limin. In addition, the company publicly delisted through the Chongqing United Property Rights Exchange to acquire 45% of the equity of Hunan Xiangzhong Pharmaceutical Co., Ltd., with a transaction price of 144 million yuan.

Also on June 4, China Resources Shuanghe announced that the company intends to acquire 45% of the equity of Hunan Xiangzhong Pharmaceutical Co., Ltd. through the public delisting of the Chongqing United Property Rights Exchange, with a transaction price of 143.87661 million yuan.

With the merger and acquisition, the performance of the improvement, china resources Shuanghe stock price is also rising, from March 2016 to June 2018 stock price all the way up, from the lowest 12.68 yuan once rose to about 27 yuan, up 100% more.

(This article is compiled from Sina Finance, Oriental Wealth Network, Dongxing Securities Research Report)