Keyuan Pharmaceutical recently disclosed its 2023 annual report, which is different from the soaring progress during the IPO reporting period, and the company's performance in the first year of listing on the GEM has taken a sharp turn.
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The performance "turned around", and the quality of the annual report was worrisome
According to the annual report, Keyuan Pharmaceutical (301281. SZ) will achieve operating income of 448 million yuan in 2023, a slight increase of 1.07% year-on-year, but the net profit attributable to the parent company and the net profit deducted from the non-attributable parent company both showed "negative growth". Among them, the net profit attributable to the parent company fell to 77.0394 million yuan, a year-on-year decrease of 15.60%, and the net profit deducted from the non-attributable parent fell to 65.4507 million yuan, a decrease of 23.10%. In addition, in the case of revenue growth, the company's net cash flow from operating activities in the current period decreased by 68.04% year-on-year to only 37.031 million yuan.
It is reported that the reporting period of the company's IPO prospectus (last draft) is 2019, 2020 and 2021, during which the annualized compound growth rate of operating income is 16.33%, the net profit attributable to the parent is 61.03%, and the net profit not attributable to the parent is 80.04%. In the letter of intent, the company announced the main data of the consolidated income statement in 2022, with operating income continuing to increase by 5.22%, and net profit attributable to the parent company and net profit deducted from non-attributable to the parent increased by 16.77% and 6.66% respectively.
Keyuan Pharmaceutical said at the 2023 annual results briefing held on April 2 that the company's product prices will drop significantly in 2023, coupled with the company's increased marketing efforts and R&D investment after listing, which will comprehensively lead to a decline in profits in 2023.
As a chemical pharmaceutical company, Keyuan Pharmaceutical's main products are divided into chemical APIs, chemical preparations and intermediates, and the annual report shows that the company has 28 API registration numbers and 42 chemical drug preparation approval numbers. The API products are mainly gliclazide, metformin hydrochloride, ropivacaine hydrochloride, isosorbide mononitrate, etc., all of which have passed the national GMP certification. The chemical drug preparation products mainly include fluoxetine hydrochloride dispersible tablets, isosorbide mononitrate sustained-release tablets, isosorbide mononitrate tablets, etc., of which 30 drugs have been included in the national medical insurance catalogue and 16 drugs have been included in the national essential drug catalogue.
In 2023, chemical API products will contribute operating income of 208 million yuan and operating profit of 50.2657 million yuan to Keyuan Pharmaceutical, a year-on-year decrease of 27.41% and 43.31% respectively, and the gross profit margin of products will decrease from 30.94% to 24.16%, a decrease of 6.78 percentage points.
The revenue of chemical preparation products in the current period increased significantly, from 68.7587 million yuan in 2022 to 149 million yuan, and the gross profit margin also increased from 72.65% to 75.14%. However, the increase in sales of preparation products led to an increase in marketing expenses in the current period from 18.6394 million yuan in the previous year to 43.5839 million yuan, driving a year-on-year increase of 34.7313 million yuan in sales expenses.
In terms of R&D investment, the company's R&D expenses in 2023 will be 43.8593 million yuan, an increase of 16.8921 million yuan from the previous year, mainly due to the increase of 17.1183 million yuan in outsourcing development expenses. In 2023, the company's outsourced development expenses will be 25.3666 million yuan, accounting for 57.84% of the R&D expenses in the current period, while the proportion in the previous two years was about 31%.
At the same time, the company's R&D personnel will increase from 36 in 2022 to 57 in 2023, including 8 college degree personnel, all of whom will be added in 2023. According to the annual report, the increase in R&D personnel in this period is mainly due to the increase in the company's R&D projects under development, which requires the support of more professional R&D personnel.
In addition to the poor performance, the company's 2023 annual report also contained some obvious disclosure errors.
For example, the annual report "Operating Cost Composition" shows that the company's operating costs in 2022 include direct labor of 25.8056 million yuan, manufacturing expenses of 79.8141 million yuan, direct materials of 155.952 million yuan, and other business costs of 110,100 yuan, totaling 261.6818 million yuan, but the annual report discloses 261.5717 million yuan.
Another example is the disclosure in the "other receivables" section of the annual report, the closing balance of other receivables aged 4-5 years is 2315.61 yuan. According to the arrears, the third largest other receivables unit at the end of the period is the reserve, which is aged in 4-5 years, but the balance has reached 5490.54 yuan.
The new tens of millions of leases have a lot to do with the lessor
On November 27, 2023, Keyuan Pharmaceutical announced that its wholly-owned subsidiary, Shandong Linuo Pharmaceutical Co., Ltd. (hereinafter referred to as Linuo Pharmaceutical), leased the plant and supporting facilities of Yinan Linuo Pharmaceutical Co., Ltd. (hereinafter referred to as Yinan Linuo) located in Yuquan Road, Yinan County, Linyi City for production and operation, with an annual rent of about 20 million yuan.
The counterparty Yinan Linuo is 99% owned by Yinan Yangdu Silica Sand Co., Ltd. (hereinafter referred to as Yangdu Silica Sand), and Linuo Pharmaceutical holds the remaining 1% of the shares.
In March 2024, Linuo Pharmaceutical's official WeChat account released the article "Strategic Collaboration for a Better Future|Yinan Linuo Pharmaceutical and Beijing Minkang Baicao Pharmaceutical Sign Strategic Cooperation Agreement!". Yinan Linuo signed a strategic cooperation agreement with Beijing Minkang Baicao Pharmaceutical Technology Co., Ltd., and Jiang Hongsheng, Chairman of Keyuan Pharmaceutical, and Liu Xin, Vice President of Linuo Pharmaceutical and General Manager of Yinan Linuo, attended the signing ceremony.
The general manager is usually the core decision-maker of a company, and the position of general manager of Yinan Linuo is concurrently held by the vice president of Linuo Pharmaceutical, which at least shows that Linuo Pharmaceutical can participate in the business decision-making of Yinan Linuo. According to Accounting Standard for Business Enterprises No. 36 - Disclosure of Related Parties, "significant influence" refers to a related party that has the power to participate in the decision-making of an enterprise's financial and operational policies, and one party controls, jointly controls or exerts significant influence on the other party.
According to the above provisions, even if Linuo Pharma only has a "significant influence" on Yinan Linuo, it should disclose Yinan Linuo as a related party. However, whether it is the previous announcement or the annual report, Keyuan Pharmaceutical has not identified Yinan Linuo as a related party, and the relevant leasing behavior has not been recognized as a related party transaction.
According to the lease contract disclosed by the Company, in addition to clarifying the basic terms and conditions such as the leased property, lease term and lease fee, Linuo Pharma and Yinan Linuo also agreed that when the conditions are ripe, Linuo Pharma may give priority to the acquisition of the equity of Yinan Linuo held by Yangdu Silica Sand by issuing shares with the parent company as the main body.
On March 28, 2024, Keyuan Pharmaceutical announced that it intends to submit to the general meeting of shareholders to authorize the board of directors to handle matters related to the private placement of specific targets through simplified procedures, with a total financing of no more than 300 million yuan and no more than 20% of the net assets at the end of the most recent year.
More than 400 million yuan was raised, and 1 billion yuan was used to buy wealth management products
According to the data of Choice Financial Terminal, Keyuan Pharmaceutical was listed on the GEM on April 4, 2023, with an issue price of 44.18 yuan per share, raising a total of 855 million yuan, and the net amount of funds raised after deducting the issuance costs was 765 million yuan, of which the over-raised funds reached 415 million yuan. The company's issuance expenses totaled 89.9612 million yuan, of which the sponsorship and underwriting fees were 73.9395 million yuan.
On April 25, 2023, the board of directors deliberated and approved the "Proposal on Using Part of the Idle Raised Funds and Own Funds for Cash Management", and agreed that the company should use no more than 700 million yuan of idle raised funds and no more than 600 million yuan of its own funds for cash management. The annual report shows that the company will pay more than 1 billion yuan in cash for the purchase of wealth management products in 2023, but only 16.6996 million yuan will be raised in IPO fundraising projects (except for supplementary liquidity).
In January 2024, Keyuan Pharmaceutical announced the completion of the fundraising project "Technical Transformation Project of API Integrated Production Line", with a total investment of 56.7084 million yuan, and the balance of the contract and warranty to be paid is 3.7459 million yuan, totaling 60.4543 million yuan, accounting for about 66.43% of its fundraising scale (91 million yuan).
In terms of stock price, Keyuan Pharmaceutical suffered a breakdown on the first day of listing, closing down 12.29% at 38.75 yuan per share on the same day. As of the close of trading on April 9, 2024, Keyuan Pharmaceutical's share price was 26.76 yuan per share, which was still about 14% lower than the issue price after resumption. On April 9, Keyuan Pharmaceutical had a large transaction at a transaction price of 21.24 yuan per share, a discount of 20.63% from the market closing price.
At the 2023 annual results briefing, some investors raised the question of "if the fixed increase price is lower than the issue price of your shares, does it also mean that your issue price is too high". Keyuan Pharmaceutical responded that the issue price reflected the fair market price given by the institution at that time, and the price or decline of shares in the later period was greatly affected by short-term factors in the secondary market, and the correlation with the issue price was not strong.
It is worth mentioning that on April 10, 2023, that is, 6 days after the company's listing, Keyuan Pharmaceutical announced that it received the resignation report submitted by Feng Li, deputy general manager. On May 16, General Manager Sun Xuelian announced her resignation. On October 25, Li Hailei was hired as the company's financial director, but applied for resignation on December 13, less than two months after taking office. According to the announcement, the three executives no longer hold any positions in the company after their resignations, and all three of them left for "personal reasons".