Penetrate the financial report to discover the secrets of the company - interpret the Ao Dong Pharmaceutical industry that deviates from the main business

The predecessor of Jilin Aodong Pharmaceutical Group Co., Ltd. was the state-owned Yanbian Dunhua Deer Farm established in 1957, which was established in 1981 as Aodong Pharmaceutical Factory, which was restructured into Jilin Aodong Pharmaceutical Group Co., Ltd. with the approval of the Provincial Structural Reform Commission in March 1993, and was listed on the Shenzhen Stock Exchange on October 28, 1996. The company holds a total of 6 professional pharmaceutical subsidiaries engaged in modern Chinese medicine, biochemical drugs and phytochemical drugs, 1 pharmaceutical research and development subsidiary, 5 pharmaceutical sales subsidiaries, 6 pharmaceutical supporting subsidiaries, 2 high-end health care product companies, 1 road construction toll company, 1 Ao Dong International (Hong Kong) Industrial Co., Ltd., with planting and breeding bases, established an industrial chain business model of "company + standardization base + licensed farmers", and gradually developed into an industrial chain based on the pharmaceutical industry and "industry + finance" Two-wheel drive model of rapid development of holding group listed companies. At present, the company is GF Securities Co., Ltd. (stock abbreviation: GF Securities, stock code: 000776. SZ, 1776.HK), the largest shareholder, also invested in Liaoning Chengda Co., Ltd. (stock abbreviation: Liaoning Chengda, stock code: 600739. SH), Shanghai First Pharmaceutical Co., Ltd. (stock abbreviation: First Pharmaceutical, stock code: 600833. SH), Jilin Yatai (Group) Co., Ltd. (stock abbreviation: Yatai Group, stock code: 600881. SH), Nanjing Pharmaceutical Co., Ltd. (stock abbreviation: Nanjing Pharmaceutical, stock code: 600713. SH), Jilin BoyaTe Medical Nutrition Technology Co., Ltd., etc.

First, the strange net profit after tax

According to the company's annual report released in 2015, the company's sales revenue was 2.3 billion yuan, but its net profit after tax was as high as 2.6 billion yuan. In 2016, the company's sales revenue was 2.7 billion yuan, and its net profit after tax was close to 1.7 billion yuan. What is the reason why this company has such a strange sales net profit margin indicator?

Second, the steady state of operation

To understand this company, we must first look at the sales composition of this company. Of the company's sales of 2.736 billion yuan in 2016, 2.663 billion yuan came from pharmaceuticals. Among them, the sales of proprietary Chinese medicines were 1.2 billion yuan, the sales of chemical drugs were 1.4 billion yuan, and the sales of food and other businesses were less than 100 million yuan.

If you look at the composition of single-line sales, these sales components seem ordinary. So why is the company's net profit after tax so low? Where is the secret? In fact, in addition to its main business, its investment success is the main factor that leads to such a contrast in its statements. The analysis of the investment business of Jilin Ao Dong will be elaborated in detail when analyzing at the financial level, and its main business - the pharmaceutical sector will be analyzed here.

The company was listed in 1996 and is considered an established listed company. At the beginning of the listing, the annual sales revenue was 242 million yuan and the net profit was 39 million yuan. In the past 20 years, the company's sales revenue has increased by 10 times, and the net profit after excluding investment income has also increased by almost 10 times. That is to say, the company's main business has basically maintained sustained and stable growth, but the growth rate is relatively slow; other companies have taken 10 times to grow for 10 years, while Jilin Aodong has taken 20 years.

The company's sales in 2016 increased by 17% compared to 2015 and 4% in 2015 compared to 2014. In the same period, the main business profit fell by 1% and increased by 4%, which means that it was basically flat. The gross profit margin of sales was basically maintained at a level of about 70%, 71% in 2016, slightly higher than 69% in the previous year.

On the whole, the operation of the company's main business is unsuccessful, but it is definitely not a failure, its product quality is stable, it has a certain reputation and competitiveness in the market, and it can be said that it is a company with a fairly stable operation.

Third, the management efficiency of stability and decline

(1) Analysis of asset turnover

From the perspective of asset turnover, this is a company with heavy assets. In 2016, the sales revenue of 2.7 billion yuan, the total assets exceeded 20 billion yuan, and the asset turnover rate was only 0.13, compared with 0.12 in the previous year. What is the reason for the inefficient use of a company's assets? The following is an analysis.

(2) Proportion of non-current assets

The company's non-current assets account for 84% of total assets, which is the main reason for the company's low turnover rate.

In the composition of the company's non-current assets, the largest proportion of assets is long-term equity investment, with long-term equity investment reaching 13.5 billion yuan in 2016, accounting for 79% of non-current assets. Since this part of the investment does not contribute to the company's main business income, it should be excluded from the management efficiency of the pharmaceutical sector of the analysis company. If the assets of long-term equity investment are excluded, the company's asset turnover rate fluctuates around 0.4, which is still far below the median value of the industry of 0.73. In this sense, the company's management efficiency is relatively low. At the very least, it's not a well-managed company.

(3) Inventory and accounts receivable turnover

Inventory turnover has remained at a level of 1.6-2 over the past 10 years. In FY2016, it was 1.6, slightly higher than the previous year's 1.59, indicating that the company's inventory management and sales model was relatively stable.

The accounts receivable turnover ratio remained basically at 2.5-3.5, compared with 3.22 in the previous year, down from 3.73 in the previous year.

Overall, the company's management level has not changed much in the past 10 years. This shows that the company's management level needs to be improved.

Fourth, the financial level of mediocre performance

(1) Analysis of asset-liability ratio

The company has more than 20 billion yuan of assets, while the liabilities are less than 1.5 billion yuan, and the asset-liability ratio is only 7%, far below the level of 11% in the previous year, and far below the median value of 30% in the industry. The company's debt ratio is so low, on the one hand, it shows that the company's financial risk is extremely low; on the other hand, it also shows that the company is not good at financial management, and the excessive proportion of shareholders' equity leads to a high cost of capital of the company, which leads to a decline in the efficiency of shareholders' equity capital.

(2) Short-term solvency

From the perspective of the company's short-term solvency, the current ratio in 2016 was close to 3, indicating that the company's current assets are 3 times that of current liabilities. Although such a company does not have short-term debt repayment difficulties, but the company's operation process precipitated too much surplus funds, its use of funds will not be high efficiency.

V. Sustainable "Partial Wealth"

Since its listing, the company has carried out allotment of shares in 1998 and 2000 respectively, and has raised a total of 550 million yuan. After that, the company completely relied on its own accumulation and indirect financing capabilities to achieve the growth and expansion of the company. Especially in the field of equity investment, the great success has subverted people's perception of traditional financial reporting.

In 2016, the companies in which the company participated mainly included GF Securities, Jilin Yatai and Tonggang Group. Among them, the most successful equity investment that had a significant impact on the company's performance was a stake in GF Securities.

In 2002, the company invested 300 million yuan and acquired 15% of the equity of GF Securities. In the following years, the company successively transferred the shares of other shareholders, and by 2006, its shares had increased to 47.76%. GF Securities is listed in A-shares and H-shares respectively, with a current market value of 126 billion yuan, sales revenue of 20.7 billion yuan and net profit of 8.4 billion yuan in 2016. Jilin Ao Dong holds 16.43% of the shares, ranking as the first or second shareholder, and received an investment income of 1.3 billion yuan by the equity method.

Combining the positive and partial finances of Ao Dong, Jilin Province, the pre-tax profit in 2016 was 1.74 billion yuan. Among them, the main business profit contributed 315 million yuan, the net investment income contributed 1.315 billion yuan, and the net non-operating income and expenditure contributed 110 million yuan. It can be seen that the value of Jilin Aodong is not mainly determined by its main pharmaceutical sector, but by its equity investment, and the market value share of GF Securities alone exceeds 20 billion yuan, accounting for 76% of its current total market value of 27.3 billion yuan.

Sixth, the performance of riches on paper

How to evaluate the performance of such a sustainable company whose investment returns are much higher than its main business profits?

First of all, in the asset part, it is necessary to distinguish between investment assets and operating assets; secondly, in the income part, it is necessary to distinguish between investment income and operating income. The simple calculation is to exclude long-term equity and other assets that generate direct income from total assets. In 2016, the company's actual capital invested in operation was 5.6 billion yuan.

In 2016, the company's shareholder return rate was 8.7%, far lower than the level of 14.8% in the previous year, the main reason is that the company's profits have a greater dependence on the net profit of the investment object GF Securities, and the income of GF Securities is closely related to the prosperity of the securities market, and the sharp decline in its performance directly leads to a sharp decline in shareholder returns in Ao Dong, Jilin Province.

VII. Conclusion

Jilin Aodong is an extremely bland company in terms of main business; but due to the success of equity investment, Jilin Aodong is also a company with remarkable achievements. However, because this performance is only the paper rich at the time of the consolidated statements, as long as its subsidiaries do not directly distribute cash dividends, the company's net cash inflows are difficult to support its book performance. For a long time, the company's net cash from operating activities has been less than 0.2 to protect the net profit of the statement, perhaps, this is what people usually call paper wealth!

In summary, since the company's net book income and the company's intrinsic value depend to a large extent on the performance and market value of the invested company, the rise and fall of the invested company directly affects the investment value of Ao Dong, Jilin Province.