Since the collapse of the bubble in 2021, the CSI Pharmaceutical Index has been adjusted for three consecutive years, falling by more than 60%, and will accelerate its decline by more than 20% again in 2024. Many people have completely lost confidence in medicine and feel that it is not worth investing in.
However, standing at the current point in time, if I were to choose the most promising track in the next five years, it would definitely be medicine.
First of all, medicine is very important and is the direction of policy support, which everyone must recognize.
- The trend of population aging is certain and irreversible, and the treatment and prevention of diseases will be a large market to deal with the health problems brought about by population aging.
- When the pharmaceutical industry has a long slope and thick snow, and the high-quality faucet is mistakenly killed and undervalued, it will become a good investment target. I hope to find a company in this that I can hold for a long time.
Today, we will introduce Tibet Pharmaceutical, the company is a leader in the cardiovascular field, with a gross profit margin of up to 95%, surpassing Moutai, and its historical performance continues to rise, with a current valuation of just over 10 times.
The old rule, we do not make future judgments, only through the "five-step analysis method", for the listed company's financial data, product analysis, actual controllers, industry prospects and risk valuation five aspects, the company and the industry to explain. The quality of the company requires everyone to think independently and consider comprehensively.
Tibet Pharmaceutical:
1. Financial data:
The company's performance has entered a stage of rapid growth since 2015, with revenue of 1.38 billion and profit of 92 million in 2015 and revenue of 3.13 billion and profit of 800 million in 2023. In 8 years, revenue has increased by more than 2 times, profits have increased by 8.7 times, and the compound growth rate of profits has reached 31%.
2021~2022 is the decline stage of the company's performance, of which in 2021, the impairment of Imdo Group was 458 million yuan, and in 2022, the new crown vaccine project with Russia HV Company was suspended, and the impairment was about 330 million. In general, the company's business is getting bigger and bigger, and the money is getting more and more.
From the perspective of profitability, the company's gross profit margin has risen from 76% all the way to 95%, even surpassing Moutai, which is very exaggerated. However, the net profit margin is basically maintained at more than 20%, and the ROE fluctuates greatly, which can be maintained around 14% in most years, which is decent.
The gross profit margin is higher than that of Moutai, but when it comes to net profit margin and ROE, it is basically only half of Moutai?
Then take a closer look at the income statement, you can see that the company's sales expenses are extremely high, with R&D expenses of only 17 million, while sales expenses are as high as 1.76 billion, and sales expenses are 100 times that of R&D investment. What kind of product does the company do without R&D, but need such a high cost to bring it to market?
2. Risks and valuations
In terms of risk indicators, the company's risk indicators are generally good, and there is no major risk.
Looking at valuations.
The company's historical valuation pivot is around 35x P/E. The current market value is about 10 billion, and the profit of 800 million in 2023 is converted into a price-earnings ratio of 12.7 times, which is at a historical low level. For a growth stock with a compound growth rate of 30%, this valuation is indeed underestimated.
However, from the perspective of business goals, the company's target total revenue in 2024 is 3.4 billion, an increase of 8.5% year-on-year in 2023, and the growth rate has declined, while the company's reported revenue this year has fallen by 11%, and the profit growth rate is only 5%, judging the company's future growth has become the key.
Third, the industry prospects
With the aging of the Chinese population, the enhancement of people's health awareness and the improvement of the medical security system, the market demand continues to rise; While demand is growing, pharmaceutical companies continue to increase R&D investment, significantly improve their innovation capabilities, and a number of innovative drugs have been successfully approved for marketing. In addition, some enterprises have expanded the international market through overseas mergers and acquisitions, cooperative research and development, etc., and China has also strengthened cooperation with international pharmaceutical organizations and enterprises, the internationalization process continues to accelerate, and the development trend of the pharmaceutical industry is good. However, with the deepening of the reform of the national basic medical insurance system and the adjustment or introduction of relevant policies and regulations, the trend of the current drug policy will continue.
4. Business and products:
Tibet Pharmaceutical covers the fields of biopharmaceuticals, Tibetan medicines, traditional Chinese medicines and chemical medicines. The main products include "Xinhuosu", "Imdo", "Nordicon", etc., and also has traditional Chinese medicine varieties such as Xueshan Jin Luohan Pain Relief Coating Agent, Shiwei Tida Capsule, and Pediatric Shuangqing Granules, involving cardiovascular and cerebrovascular, hepatobiliary, sprain, rheumatism, rheumatoid, cold and other fields.
Product Structure
In 2023, 7.776 million pieces of Xinhuo will be sold, with a sales revenue of 2.82 billion yuan, accounting for 90% of the revenue; Imdo's sales revenue was 130 million yuan, and Nordicon sales revenue was 97.49 million yuan; The sales revenue of the remaining products was 84.59 million yuan.
"Neo-Activin" is a new class of national biological products independently developed by the company, which fills the gap of genetic engineering drugs for the treatment of acute heart failure in China and is the company's core product.
The company's other two products in the cardiovascular field, Imdo and Nordic capsules, were included in the National Essential Medicines List (2018 edition), of which Nordic is a double-span drug (prescription and over-the-counter) with Rhodiola as the raw material.
Imdo is a first-line drug for the treatment of coronary heart disease, and was once AstraZeneca's ace drug, which was marketed in Europe in 1985. The company spent $190 million to acquire AstraZeneca in 2016, but not only failed to contribute profits after the acquisition, but also made a large impairment of $710 million in 2018, 2021 and 2023.
Core product: neo-activin
Neoactivin is the company's only large-scale single product, and the drug name is recombinant human brain natriuretic peptide for injection, which is a rigid treatment drug for acute heart failure.
Heart failure, or heart failure for short, is a complex clinical syndrome in which ventricular filling or ejection is impaired due to structural or functional abnormalities of the heart. Heart failure is one of the most important cardiovascular diseases today due to its high incidence in the severe and end-stage stages of various heart diseases. Recombinant human brain natriuretic peptide is the only drug that works on acute heart failure through multiple pathways, while having a higher safety profile and fewer side effects.
The original developer of recombinant human brain natriuretic peptide/nesiric peptide is United States Scios Inc., which was approved by the United States FDA in 2001 and reached $400 million in sales in 2004, and was once predicted to become a blockbuster variety with sales of more than $1 billion.
However, in 2005, it was reported that recombinant human brain natriuretic peptide/nesiric peptide may increase the risk of premature death and may cause kidney dysfunction in patients, two serious side effects. Although it was later proven that these two side effects were not present, market expansion was affected.
Tibet Pharmaceutical's neo-activin was approved for marketing in 2005, but failed to contribute for the next decade. It was not until 2017 that Xinhuo entered the medical insurance by about 40% through high-priced drug negotiations, which solved the dilemma of the previous high unit price of the product and the inability to be reimbursed by the medical insurance, and began to increase dramatically. Sales in 2018 were more than three times that of 2016, with sales of nearly 600 million yuan.
As a biological drug, it is exclusive in China, and the high price is normal, and the production volume has increased significantly after the price reduction, and the gross profit margin has been rising all the way under the scale advantage.
As the core of the company's performance, the company launched the expansion of the new active element production line in 2021, which will reach an annual production capacity of 15 million units, which is double the sales volume in 2023. According to the information in the annual report, the company's new active horbin expansion production line has been completed, and the preparation workshop has passed the GMP compliance inspection, and has obtained the GMP compliance inspection notice, and is currently waiting for registration and approval.
5. Actual controller:
The actual controller of the company is Lin Gang, holding 17.33% of the shares, and the main business is to control the listed company through the CMS enterprises under him.
Lin Gang graduated from Zhanjiang Medical College (now Guangdong Medical College) in 1986 and acquired Shenzhen CMS Pharmaceutical in 1995 from a small company engaged in drug trading to a pharmaceutical service company providing marketing, promotion and sales services. He has more than 20 years of experience in the marketing, promotion and sales of pharmaceutical products and other value-added services.
The sales of Tibet Pharmaceutical's core products, Xinhuo and Imdo, are all entrusted to the subsidiaries of CMS Pharmaceutical, and the company's annual large sales expenses are given to CMS Pharmaceutical, a subsidiary of the actual controller. This kind of actual controller is not the type we like.
Summary:
On the whole, the performance of Tibet Pharmaceutical is very good, the valuation is also low, and the future development space of the pharmaceutical industry and cardiovascular track is broad.
However, the company's single product and serious lack of R&D investment limit the growth height, and it is necessary to pay attention to the impact of potential competitive products in the market on the company's product prices. In addition, the company's sales are heavily dependent on major shareholders, and the nature of the company's major shareholders is also a minus.
The fundamentals of the Tibetan pharmaceutical industry have been introduced, but whether it can become a qualified value investment target still needs to be further analyzed, independent thinking, and make their own judgments after comprehensive consideration.