"Ten billion-level" and "one of the leading health leaders of traditional Chinese medicine"...... On May 10, Conn Bay (600572. SH) held its 2023 annual general meeting of shareholders in Hangzhou, Zhejiang, and these keywords appeared in Chairman Hu Jiqiang's response to investors' questions. In the past 2023, like many traditional Chinese medicine companies in A-shares, Kangenbei has also achieved a double increase in revenue and net profit, but the problems that plague the development of the industry such as the risk of price fluctuations of Chinese herbal medicines and homogeneous competition are still there, which is also one of the most concerned issues for investors.
Self-built Chinese herbal medicine base to cope with the fluctuation of raw material prices
In 2023, Kangenbei will achieve an operating income of 6.733 billion yuan, an increase of 12.21% year-on-year, a net profit attributable to the parent company of 592 million yuan, an increase of 65.19% year-on-year, and a gross sales margin of 58.48%, a year-on-year decrease of 0.82 percentage points. The business situation is good, but looking at the industry, this achievement is actually not easy to come by. The price increase of Chinese herbal medicines will become a key word in the industry in 2023, and what measures to take to avoid the risk of raw material price fluctuations have become a concern for investors.
In this regard, Jin Zucheng, secretary of the board of directors of Kangenbei, responded that in the traditional Chinese medicine industry chain, Kangenbei has established a Chinese herbal medicine base through self-construction and cooperation with other units for many years, so the supply of many large varieties of medicinal materials of the company is relatively fixed, so that the impact of external raw material price increases on the company is minimized. "So far, the prices of most raw materials have stabilized, so we believe that the overall impact (of rising prices of medicinal materials) on this year's profits is controllable." Jin Zucheng said.
From the perspective of the revenue distribution of Kangenbei, in 2023, all categories of traditional Chinese medicine, characteristic chemical drugs, and characteristic consumer health products will contribute 53.85%, 35.51% and 8.62% of the operating income respectively. Kangenbei also specifically mentioned in the 2023 annual report that "during the reporting period, the company's core business of traditional Chinese medicine and health accelerated its development, and the proportion of revenue in the company's total revenue further increased".
The healthy development of traditional Chinese medicine has become the focus
Behind this is Kangenbei's "ambition" in the field of traditional Chinese medicine and health. Hu Jiqiang was asked by investors about the future growth space of Kangenbei, measures to avoid homogeneous competition, etc., said that the goal of the company's efforts in the future is: by 2028, in the case of the simultaneous development of various sectors, the proportion of traditional Chinese medicine will be increased to nearly 80%, and the traditional Chinese medicine sector will be 10 billion yuan, becoming one of the leaders of traditional Chinese medicine and health.
According to the current data, Kangenbei's digestive tract and metabolism, respiratory system, cardiovascular system, genitourinary system and sex hormones and other categories of products have a large revenue scale. Hu Jiqiang introduced that from the perspective of future development strategy, each category will have leading leading products and a series of follow-up products. According to this line of thinking, the "Kangenbei" brand intestinal Yanning series is highly expected by the company. According to the annual report, as the leading product in the domestic retail intestinal drug market, the sales revenue of the "Kangenbei" brand intestinal medicine series products will be nearly 1.3 billion yuan in 2023, a year-on-year increase of 28%.
Hu Jiqiang believes that the intestinal Yanning series still has great potential in the future, "Kangenbei intestinal Yanning is not a product, it is a series, and there are tablets, granules, syrup, capsules, etc. under this generic name alone." Hu Jiqiang also responded to concerns that the "same name and same prescription" drug may have an impact on a large variety like Enteritaning. "Same name and same prescription" medicine can be understood as a generic version of Chinese patent medicine. At the beginning of 2023, the first "same name and same prescription" drug in China, Bailing Capsule of Zuoli Pharmaceutical, received the drug registration certificate, bringing new changes to the industry. However, Hu Jiqiang believes that this case has its particularity, and the same name and prescription drug often need to do clinical trials, so the investment is large, "so in fact, it is difficult to imitate exclusive varieties of Chinese patent medicines, and Chinese patent medicines can also apply for the protection of traditional Chinese medicine varieties."
In this context, Kangenbei has increased its R&D investment in the intestinal Yanning series. In Hu Jiqiang's introduction, innovative traditional Chinese medicine, improved traditional Chinese medicine and secondary development of large varieties are three important components of the company's innovative research and development work. According to the annual report, in 2023, the R&D investment of the "Secondary Development of Enteritis Ning" project will be 196.934 billion yuan, ranking first among the main R&D projects disclosed by the company that year. "We have to find a better basis in the hospital market to expand the therapeutic field, and there will be more space (for drug sales), so these products have great potential." Hu Jiqiang explained.
How to lay out innovative drugs in traditional Chinese medicine?
In addition to the secondary development of large varieties, innovative drugs of traditional Chinese medicine are also an important layout of traditional Chinese medicine enterprises, including Kangenbei. Regarding the further research and development direction of innovative traditional Chinese medicine drugs, Hu Jiqiang said in response to a question from Silver Persimmon Finance that Kangenbei's gene is "to make traditional Chinese medicine with the concept of modern botanicals", so the company is committed to finding the active ingredients in traditional Chinese medicine to develop new drugs, that is, new drugs in traditional Chinese medicine class 1.2. "The technical content of class 1.2 new drugs is much higher than that of class 1.1." Hu Jiqiang pointed out.
For example, in 2023, Kangenbei will be included in the 2023 National Medical Insurance Catalogue through negotiations. It is understood that this product was originally extracted, separated and purified from the Chinese herbal medicine Yellow Hollyhock Flower to obtain the active ingredient "Yellow Hollyhock Flower Total Flavonoid Extract", and then used modern preparation technology to make a double-layer oral patch including a drug-containing layer (hydrophilic layer) and an isolation layer (hydrophobic layer).
"Each enterprise should have its own characteristics, and we will have a historic breakthrough in the development of innovative drugs derived from traditional Chinese medicine, which is a product derived from traditional Chinese medicine but completely modern medicine." Hu Jiqiang pointed out.
In addition to the main business, Kangenbei participated in the private placement of the Inter Group (000411. SZ) has also attracted the attention of on-site investors. On the interactive platform, there have been many investors who have doubts about this investment in Kangenbei. In 2023, Kangbei will complete the subscription of 48.9 million shares of the non-public issuance of shares of the Inter Group with a capital of 400 million yuan (the shareholding at the end of the reporting period accounts for 9.36% of the total share capital of the Inter Group), and nominate a director to participate in the governance of the Inter Group. It is understood that the controlling shareholder of Intel Group and Kangenbei is also Zhejiang Traditional Chinese Medicine and Health Industry Group Co., Ltd.
In this regard, Hu Jiqiang said that Kangbei and the Inter Group itself has business dealings, and Kangbei believes that the rate of return after the investment will be better after careful evaluation. Judging from the facts, this investment has indeed gained a certain amount of value, contributing to the investment income. The annual report shows that in 2023, Kangenbei will recognize an investment income of 34.787 million yuan in accordance with the equity method for Intel Group at the consolidated level.
It is also worth mentioning that, as mentioned in the business plan of the annual report, the key tasks in 2024 include "doing a good job in the re-election of the board of directors and promoting the replacement of the old and new management team". It remains to be seen what will happen to the company's management team and what progress will be made in the business.