Another faucet, stumbled

Myths, can they be reproduced?

Fall off the altar

Tongce Medical (600763) may be one of the worst medicine white horses in the past two years.

As of the close of trading on June 16, 2023, the company's share price is 101.93 yuan per share, with a total market value of 32.683 billion. This stock price has fallen by more than 30% this year. If you stretch the time a little longer, compared with the high of 421.99 yuan / share in 2021, the decline of Tongce Medical has exceeded -

75%。

This fall method can no longer be described by a waist chop, this is to cut off all above the knee.

▲Source: Baidu Stock Connect

At the beginning of 2021, the price-to-earnings (TTM) ratio of Tongce Medical soared to 270 times, and now it is only 59 times.

Even worse are the investors. According to the data, at the end of 2020, the number of shareholders of Tongce Medical was only 25,900, and by the end of 2021, this number increased to 104,000, an increase of 300%. As of the end of March 2023, there are still more than 80,000 households in this number.

▲Source: Oriental Wealth

The retail investors who wanted to rush to get a piece of the pie did not want to be cannon fodder to take over. How hard Tongce Medical has fallen in the past two years, how desperate they are.

There were also a number of institutions that retreated in a hurry. In the past few years, when Tongce Medical soared, countless institutions flocked to it. Choice data shows that as of the end of 2020, there were 514 funds holding positions in Tongce Medical, accounting for 25.18% of the outstanding shares.

However, by the end of March 2023, only 64 funds remained to hold Tongce Medical, a decrease of nearly 90% compared with before.

Among these institutions, Gülen's China-Europe Healthcare Hybrid Fund has to be mentioned. Since 2020, CEIBS Healthcare has continuously increased its position in Tongce Medical, and has been adding to the company's second largest shareholder.

▲Source: Oriental Wealth

But even if she is the "goddess of medicine", it has not been able to stop the downward trend of Tongce Medical. Gülen, who fell and bought more and more, directly "lay flat" after Tongce Medical fell by 60%.

The profiteering behind the "tooth grass"

It is no wonder that Gülen is so persistent, because the business of Tongce Medical is indeed "sexy" enough.

According to the official website, Tongce Medical has opened nearly 30 dental hospitals across the country and is a leading enterprise in the field of dental hospitals. Behind this, there is a profiteering tooth river.

In media reports, there are many examples of spending a lot of money to change teeth -

In 2019, Zhao Yuguo (pseudonym) from Shanghai had 2 teeth implanted at a cost of more than 60,000 yuan;

In 2017, 52-year-old Ms. Zhou went to Wuhan University Stomatological Hospital for dental implants, had 14 implant nails, fixed 28 teeth, and spent nearly 200,000 yuan...

Even Professor Lin Ye, a member of the National Committee of the Chinese People's Political Consultative Conference and vice president of Peking University School of Stomatology, once sighed -

Enough teeth to buy a BMW!

In many counties, this money can buy a house in full. A few years ago, dentistry ranked first in the "Ten Industries More Profitable Than Drug Trafficking" on the Internet.

From an economic point of view, the reason why oral medicine is so expensive is due to the imbalance between supply and demand.

From the demand side, the dental "crisis" is far more severe than we think. According to the 2019 White Paper on Eating Habits and Oral Health, 93% of people have oral problems in mainland China. In other words -

On average, only 7 out of every 100 people are orally normal.

According to the data of the "2020 China Oral Medical Industry Report", the number of dental implants in mainland China reached about 4.06 million in 2020, which is one of the fastest growing dental implant markets in the world, with a market size of nearly 160 billion yuan.

▲Source: iMedia Consulting

The demand is huge, but the supply is small. It's not that there are fewer artificial teeth, it's that there are fewer dentists.

According to the "China Health and Family Planning Statistical Yearbook 2017", there are 167227 dental practitioners (including practicing assistant physicians) in the country, accounting for 5.3% of all practicing physicians (including practicing assistant physicians), and the average number of dental doctors per 100,000 people is 16.7, far lower than 45 in South Korea, 54 in the UK, 57 in Australia, 63 in the United States and 83 in Germany.

The high cost and scarcity of dental talent keeps their fees high.

Take Tongce Medical, the financial report shows that its operating costs have been around 55% for a long time, and the composition of operating costs is mainly product materials and medical personnel salaries, of which medical staff salaries can account for 70% of operating costs.

In addition, dental prostheses, porcelain teeth, dental cleaning, orthodontics, and dental implants are many items that are not covered by medical insurance. Because in the current concept, these are not treatment projects, but "medical beauty" projects.

The huge market and high prices have become sexy growth prospects in the eyes of capital. As a result, in just three years, Tongce Medical's growth rate is close to 10 times, and it is also known as "Maotai in the teeth".

The confusing point is also here, since it is such a sexy track and an industry leader, why did Tongce Medical fall into the current situation?

The "fatal blow" from centralized procurement

We can find some answers to this question from the financial report of Tongce Medical.

According to the financial report, the revenue of Tongce Medical in 2022 will be 2.72 billion yuan, a year-on-year decrease of 2.23%; the net profit attributable to the parent was 548 million yuan, down 21.99% from the same period last year; Net cash flow from operating activities was approximately RMB670 million, down 28.67% year-on-year. In the first quarter of this year, the revenue of Tongce Medical only increased by 3.04%, and the net profit attributable to the parent increased by only 1.49%.

From the perspective of specific business, the five major businesses of Tongce Medical (implantology, orthodontics, pediatrics, prosthetics and general integration) have begun to slow down. In 2022, the revenue of orthodontic and pediatric business, which accounted for a relatively high proportion, declined, by 3.6% and 8.3% respectively; The remaining three businesses also grew by single digits year-over-year.

In addition to the performance stall, the more important reason comes from centralized procurement.

As early as 2021, there was a rumor in the market that oral implant projects would be included in centralized procurement. By January 2023, the dust had settled. Specifically, the medical service price of a single conventional dental implant in tertiary public medical institutions is 4,500 yuan, and the average price of implant system centralized procurement is reduced by 55%.

According to the financial report, the dental implant business accounts for between 15% and 20% of the revenue of Tongce Medical. Moreover, the company's strength lies in the mid-to-high-end market, where more than 10% of its customers contribute 70-80% of revenue.

More importantly, the vast majority of Tongce Medical's revenue comes from Zhejiang Province. Taking 2020 as an example, 90% of Tongce Medical's revenue came from Zhejiang Province, and Guanghangkou Hospital supported 80% of Tongce Medical's profit.

▲ Image source billion euros

Under such a situation, centralized procurement and price reduction are undoubtedly a fatal blow to Tongce Medical. Once the highly anticipated dental implant business loses its imagination, the collapse of high valuations is almost inevitable.

If confidence is to be restored, there are only two paths ahead: find a new growth story, or the country will stop the centralized procurement of oral implant projects.

Let's start with the first path. Tongce Medical said it will launch a low-cost implant business to patients and adjust the dental implant fee system to increase market share. In addition, Tongce Medical has also tried to expand nationwide through mergers and acquisitions, such as the acquisition of Heren Technology.

At present, these plans still have a long way to go, and the acquisition of Heren Technology has been questioned as "flickering".

Let's look at the second way. Is it possible for the country to stop the collection of oral implant projects? This seems harder.

Data show that in 2021, China's total health expenditure has reached 7,559.36 billion yuan, an increase of 15 times compared with 20 years ago. This is a growing pressure, according to the agency's forecast, by 2035, the gap in the medical insurance fund will be close to 1 trillion yuan.

The excessive burden of medical care is not a good thing for the country and the individual. And this is the background of large-scale centralized procurement. It is not difficult to imagine that once centralized procurement begins, there is a high probability that it will become normal. The old saying applies to businesses as well as it does -

Of course, a person's destiny depends on personal struggle, but it is also necessary to consider the course of history.