On May 13, *ST Longjin (002750.SZ), whose main product is brevisanthin for injection, received an inquiry letter for its 2023 annual report issued by the Shenzhen Stock Exchange, involving issues including the reasons for the company's losses, the rationality of the acquisition business, sales expenses, R&D capitalization, etc.
In 2023, *ST Longjin's operating income will be 86.6225 million yuan, and the non-net profit will be -81.1048 million yuan, touching the delisting indicator of "the audited net profit of the most recent fiscal year is negative and the operating income is less than 100 million yuan". On May 6, the company was put on delisting risk alert by the exchange.
From 2019 to 2022, the company's net profit after deducting non-profits was -39.886 million yuan, -2.5259 million yuan, -10.3045 million yuan, and -57.344 million yuan respectively.
The performance was sluggish, and *ST Longjin shares also underperformed. Recently, *ST Longjin stock price has fallen for 6 consecutive trading days.
Single product Questionable ability to continue operations
*ST Longjin is mainly engaged in the R&D, production and sales of modern Chinese patent medicines and high-end chemical generics, the main products include Chinese patent medicines and chemical generics, and the representative products include Longjin ® brevisanthin for injection, fibrilase for injection, bivalirudin for injection, Qiwei Tangmaishu capsules, somatostatin for injection and other drugs.
However, it is worth noting that *ST Longjin's product structure is single, mainly derived from the prescription drug brevisanthin for injection used in cardiovascular treatment, and the revenue scale of the rest of the chemical generic products that have been marketed is small.
Judging from the past financial reports, the main reason for the expansion of the company's losses in recent years is that brevisanthin for injection will enter centralized procurement in 2021, resulting in a drop in volume and price.
In the inquiry letter for the 2023 annual report, the Shenzhen Stock Exchange requested to explain the main reasons for the company's continuous losses, and the specific measures it has taken or intends to take to improve the profitability of its main business and improve its ability to continue operations.
*ST Longjin mentioned in its 2023 annual report that during the reporting period, the company's performance trend was consistent with that of the industry, due to the continuous implementation of centralized procurement of proprietary Chinese medicines, the gradual implementation of the centralized procurement price linkage policy in non-centralized procurement provinces, as well as the continuous impact of factors such as medical insurance payment restrictions, hospital prescription restrictions and changes in the market environment, while the price reduction of brevisanthin for injection was reduced by 67% in centralized volume procurement, and the actual execution of procurement volume was also lower than expected, so that the company's performance decline trend has not changed.
In order to break the shortcomings of single products, *ST Longjin has developed other businesses, such as chemical generics, industrial hemp planting, and health daily chemical products, but the effect is not obvious at present.
In the industrial hemp planting sector, in February 2019, *ST Longjin increased its capital by 15 million yuan to Yunnan Muya Agricultural Technology Co., Ltd. to obtain 51% of its equity, and its main business is large-scale cultivation of industrial hemp.
From 2019 to 2023, the company's industrial hemp revenue will be 22.67 million yuan, 22.3693 million yuan, 0.0 million yuan, 5.1311 million yuan, and 4.4706 million yuan respectively, of which the proportion of total revenue in the past two years will be about 5%.
In the big health and daily chemical sector, in 2023, the company will increase its capital to control the operating company of the cutting-edge consumer brand "Geoism", Rouyishi, which is mainly engaged in functional personal care and beauty products.
On June 30, Yunnan Longjin Brahma Biotechnology Co., Ltd., a wholly-owned subsidiary, increased its capital by 30 million yuan to Shanghai Rouyishi Biotechnology Co., Ltd. (hereinafter referred to as "Rouyishi"), a shareholding company, by 30 million yuan in cash, and its shareholding ratio increased from 10% before the capital increase to 75.61%. In 2023, Rouyi Shi and Rouyi Time (Yunnan) E-commerce Co., Ltd. will have a total revenue of 6.5267 million yuan and a net loss of 7.8534 million yuan.
*ST Longjin's 2023 annual report shows that the company formed goodwill of 10.0927 million yuan and invested profit and loss of -7.8534 million yuan due to the acquisition of Rouyi, and the impairment of goodwill formed by the acquisition of Rouyi was 7.4498 million yuan in the current period.
However, the exchange questioned the business relevance of *ST Longjin and Rouyishi, and the inquiry letter required the company to provide additional information on the background and reasons for the investment in Rouyishi, the relevance to the company's core business, whether the relevant business of Rouyi has formed a stable business model, and whether the provision for goodwill impairment is sufficient and reasonable.
Sales expenses accounted for more than 7 percent of the stock price continued to fall to the limit
From the expense side, the high sales expenses of *ST Longjin are one of the important reasons for the loss.
From 2019 to 2023, *ST Longjin's sales expenses were 182 million yuan, 158 million yuan, 165 million yuan, 80.3266 million yuan, and 64.7292 million yuan, accounting for 66.18%, 62.2%, 23.47%, 65.3%, and 74.73% of the current revenue respectively. Except for 2021, the proportion is more than 6%.
The sales expenses of pharmaceutical companies are mainly based on marketing expenses and employee compensation. Since July last year, the domestic pharmaceutical anti-corruption storm has swept across the country, which can be described as the deepest, broadest and strongest in history. In the capital market, the sales expenses of IPO pharmaceutical companies and listed pharmaceutical companies are important matters of concern to regulators and investors, especially marketing and academic promotion fees, which have always been a high incidence area of commercial bribery.
In this annual report inquiry, the exchange also noted the relevant situation of *ST Longjin's sales expenses, and asked the company to explain the specific content of market expenses, whether the market expense ratio matches the existing business, and whether there is commercial bribery or facilitation of commercial bribery. At the same time, the auditor is required to verify and express a clear opinion.
Since the beginning of this year, *ST Longjin's share price has fluctuated relatively largely.
On January 12, the company's share price reached the highest point of the year at 11.5 yuan / share, and then began to fall, on January 31, it fell for 5 consecutive trading days, and reported 5.23 yuan / share on February 5. Then the company's share price began to rebound slightly, and fell back on March 20.
Since the resumption of trading on May 6, *ST Longjin has once again fallen for 6 consecutive trading days, falling 22.58% during the period. On the 13th, the stock price was 4.32 yuan per share, with a total market value of 1.73 billion yuan.
In terms of shareholders, as of May 7, *ST Longjin had a total of 53,200 shareholders, with 7,490 shares outstanding per capita, and the chips are very scattered. As of the end of the first quarter of this year, only 4 institutions held 226.4 million shares, accounting for 56.54% of the total share capital.
In addition, the Times reporter noticed that *ST Longjin's second largest shareholder plans to reduce its holdings.
On March 13, *ST Longjin announced that Lixing Industrial Co., Ltd., a shareholder holding 16.28% of the company, plans to reduce its holdings of *ST Longjin shares by no more than 12,015,000 shares (accounting for 3% of the company's total share capital) through centralized bidding and block trading. Among them, the reduction of holdings by centralized auction shall not exceed 4,005,000 shares (accounting for 1% of the company's total share capital), which will be carried out within three months after the fifteen trading days from the date of disclosure of this announcement.