Logic, continuously verified!
Since the second half of 2023, IPOs have been significantly tightened, and 293 companies have terminated their listing applications throughout the year, which has not happened before, and the company's poor net profit performance, questionable financial statements, and business violations have caused many questions.
In 2024, in order to continue to improve the quality of listed companies and stabilize the market environment, the pace of IPOs is expected to remain unfast.
This has led to many companies turning to Hong Kong IPOs and the M&A market, especially M&A. Significantly different from a newly listed enterprise, the merger between enterprises enables the "acquired enterprise" to achieve its financing purpose, and can also directly improve the asset quality and investment value of the "acquired enterprise".
As a result, corporate mergers and acquisitions have been supported by policies, and industrial mergers and acquisitions have become a trend.
In the past two years, there have even been cases of mergers and acquisitions of listed companies in the pharmaceutical industry, such as China Resources Sanjiu's merger and acquisition of Kunming Pharmaceutical Group and Mindray Medical's merger and acquisition of Huitai Medical, which are typical industrial mergers and acquisitions in the fields of traditional Chinese medicine and medical devices.
Of course, there are more cases of mergers and acquisitions of non-listed companies by listed companies, and in addition to the fields of traditional Chinese medicine and medical devices, the most M&A events in the pharmaceutical industry occur in the field of innovative drugs, because the prosperity of innovative drugs is higher.
A typical example of Ru Skin Novo has been transformed into an innovative drug company by an API company with the help of the platform of its controlling shareholder, CSPC Pharmaceutical Group, and it is precisely because of this that although the performance has not landed, the company's valuation logic has changed greatly, which directly leads to the revaluation of value.
(Rolling P/E ratio chart of New Novo in the past three years)
Innovative drug companies often have higher future expectations (product pipelines), and companies are more dependent on expectations and growth for valuation.
Today, Xintian Pharmaceutical is a company with the logic of merger and expansion, and the company is about to acquire an innovative drug company, on the basis of the original main business of traditional Chinese medicine, the company ushered in a new stage of development.
First, the assets of the merged innovative drug companies are high-quality, with a revenue scale of nearly 1 billion in 2023, and the product advantages are very prominent.
First of all, let's take a look at the situation of this subsidiary (merged enterprise), Huilun Pharmaceutical, the company was originally a shareholding company of Xintian Pharmaceutical, established in 2004, mainly engaged in the research and development and sales of small molecule chemical drugs, the company's business areas cover a number of disease areas, immune inflammation, anti-tumor, cardiovascular, gynecology, andrology, etc.
Therefore, as of now, the scale of the company is not small, and the operating income and net profit in 2023 will reach 998 million yuan and 31 million yuan respectively, and the year-on-year increase of 141.06% and 111.74% respectively.
The contribution of the product is the income, which is reflected in the competitiveness of the product.
The company's products are positioned as high-end characteristic chemical drugs, and a total of 12 products have been approved for marketing, of which 5 are advantageous products such as improved new drugs, first generic drugs, and exclusive products.
Huilun Pharma follows the strategy of "promoting innovation through imitation" and "combining innovation with imitation", and currently has a number of Class 1 innovative drugs in the pipeline under development, and the progress of stepwise research and development is progressing, with 3 products entering the marketing stage, and many products in early clinical and preclinical studies, which is expected to form a virtuous circle.
The good state of product research and development is one of the reasons for the company's poor profitability, and it is expected that a lot of expenses will be invested in research and development, which can be seen in the financial statements of the parent company Xintian Pharmaceutical.
Second, the competitiveness of Xintian Pharmaceutical's original traditional Chinese medicine business should not be underestimated, with a variety of exclusive products and advantageous products under development.
Secondly, let's take a look at the development of Xintian Pharmaceutical's core Chinese medicine business and its future development prospects.
The most noteworthy thing is still the company's product drugs, which are different from the respiratory system drugs and cardiovascular and cerebrovascular diseases drugs that leading Chinese medicine companies will deploy, Xintian Pharmaceutical's differentiated layout of gynecological and urological system drugs can be regarded as a small and beautiful company.
According to the terminal data of China's public medical institutions in the first half of 2022, Xintian Pharmaceutical ranked first among gynecological Chinese patent medicine manufacturers, among which the core exclusive product, Kuntai Capsule, ranked among the top 3 gynecological Chinese patent medicine brands, and was the only Chinese patent medicine that improved ovarian function.
There are also exclusive products such as Sophora Sophora Gel, Ningmitai Capsule, Prunella vulgaris oral liquid, etc., which are all Chinese medicines with sales of more than 100 million, among which Ningmitai Capsule is a comprehensive analgesic and direct drug for frequent urination, Sophora Sophora gel is the only high-purity plant gel that restores the balance of vaginal microecology in three steps, and Prunella vulgaris oral liquid is the preferred drug for dispersing knots and reducing swelling.
As of the third quarter of 2023, Xintian Pharmaceutical's gross profit margin reached 77.13%, ranking fifth in traditional Chinese medicine, higher than the gross profit margin of Dong'e Ejiao and Jiangzhong Pharmaceutical.
In addition, the company's net profit margin is not too high, which is related to industry competition and the high sales expenses of pharmaceutical companies.
However, it is also the enterprises with higher expense ratios during the period that are easier to release profits when they play a role in scale advantages and cost reduction and efficiency increase.
Xintian Pharmaceutical is having the dual expectation of marketing system reform and products are expected to enter the basic drug catalog, among which the obvious is that the sales expense rate has declined significantly, with a year-on-year decrease of nearly 6 percentage points in the third quarter of 2023, and the company's internal reform has achieved initial results.
Of course, in addition to the decline in the expense ratio, promoting the expansion of product sales is the key, and this is one of the highlights of Xintian Pharmaceutical's future existence, because the company's core products except for Kuntai capsules, which are basic drug products, although the other three core products are all medical insurance products, they have not entered the basic drug catalog.
We have long expected that there is a high expectation that traditional Chinese medicine products will enter the basic drug catalog, and since 2018, the call for the basic drug catalog has been high, and in this regard, the company's other three products have been clinically verified for many years and have unique efficacy, so there is a high expectation of entering the basic drug catalog to increase the volume.
At present, there are 3 new Chinese medicine drugs that have completed phase III clinical trials, all of which have entered the stage of declaration and marketing, including two gynecological products and one neurological drug, and 8 classic prescriptions have been developed in the fields of gynecology and pediatrics, and the company's traditional Chinese medicine business is also actively expanding its future growth momentum.
In general, Xintian Pharmaceutical's original traditional Chinese medicine main business has a variety of advantageous exclusive products, and the current R&D and innovation are also increasing, and the company is about to merge and acquire a chemical drug innovation enterprise, so with the merger of mergers and acquisitions, Xintian Pharmaceutical is expected to usher in a new stage of development.
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Source: Flying Whale Investment Research