Rabies vaccine supports the performance alone, and the "good days" of Kanghua Biology will end after the exclusivity disappears?

Kanghua Bio's human diploid human rabies vaccine is temporarily exclusive, so it has enjoyed high gross profit and high growth. However, with the approval of subsequent competitors for listing, this exclusive advantage will no longer be available. The performance of Kanghua Biology is almost all supported by human diploid human rabies vaccine, and the "good days" of Kanghua Biology will probably end.

Major shareholders significantly reduced their holdings and sold at a discount in large transactions

On October 13, Kanghua Biotech announced that Cai Yong had reduced his holding of 928,456 shares of the company's shares through centralized bidding and block trading from August 11, 2021 to October 12, 2021, accounting for 1.03% of the company's total share capital.

On October 12, there were 3 large transactions in Kanghua Bio's shares, and all of them were sold at a discount.

Among them, the first block transaction transaction price was 185.57 yuan, the premium rate was -6.8%, the buyer was Guojin Securities Co., Ltd. Chengdu Wucheng Avenue Securities Business Department, and the seller was Guojin Securities Co., Ltd. Chengdu Wucheng Avenue Securities Business Department.

The second block transaction was traded at 183.63 yuan, with a premium rate of -7.78%, and the buyer was Chengdu Wucheng Avenue Securities Business Department of Guojin Securities Co., Ltd. and the seller was Chengdu Wucheng Avenue Securities Business Department of Guojin Securities Co., Ltd.

The third large transaction was traded at 174.56 yuan, with a premium rate of -12.33%, the buyer was for the exclusive use of institutions, and the seller was Minsheng Securities Co., Ltd. Sichuan Branch.

Performance is almost all supported by one product

In June 2020, Kanghua Bio was listed on the Growth Enterprise Market (GEM) with an issue price of RMB70.37. After the listing, Kanghua Bio gained 20 consecutive up and down boards, and once won the highest price of 996 yuan / share. However, since then, Kanghua Bio's stock price has entered a downward channel, and the closing price as of October 14 is 193 yuan, and the stock price has only remained nearly 20% from the highest point for more than a year.

Why did Kanghua Biologics, which once had a stock price of nearly 1,000 yuan, fall so sharply, and why was it continuously reduced by major shareholders and sold at a discount by large transactions?

The latest semi-annual report shows that in the first half of this year, Kanghua Bio achieved operating income of 560 million yuan, an increase of 23.19% year-on-year; net profit of 252 million yuan, an increase of 38.03%. This performance growth rate seems to be good, but it does hide hidden worries behind it.

In the first half of this year, the number of vaccine batches issued by Kanghua Bio has actually dropped significantly. The batch volume of lyophilized human rabies vaccine (human diploid cells) fell by 13.43% year-on-year to 1.5522 million. Another product, ACYW135 meningococcal polysaccharide vaccine, was issued in batches of 109,300, down 85.73% year-on-year.

The reason why Kanghua Bio's revenue and profit in the first half of the year was higher was due to its increase in vaccine sales prices, and the price of its core products increased by 13%-20% year-on-year. Kanghua Bio can raise prices to drive performance because its core product is the first diploid cell rabies vaccine on the market in China, and there is no other enterprise production in China for the time being.

Because of the above exclusive advantages, the gross profit margin of Kanghua Bio is as high as 92.5%. But the exclusivity of Kanghua Bio doesn't necessarily last long.

At present, the lyophilized human rabies vaccine of Beijing Minhai Biotechnology has completed phase III clinical trials, and the human rabies vaccine of Chengdu Institute of Biological Products and Anhui Zhifeilong Kema is in the phase III clinical trial stage. Once the above vaccine products are approved for marketing, the exclusivity advantage of Kanghua Biologics will disappear.

Emphasis on marketing over R&D, questioned or "disguised bribery"

Lyophilized human rabies vaccine (human diploid cells) is the core product of Kanghua Biologics, and the total revenue ratio of this product in Kanghua Biologics in 2020 is as high as 96.27%. In the past five years, the revenue scale of lyophilized human rabies and vaccines of Kanghua Bio has increased from 0.86 billion yuan in 2016 to 1 billion yuan in 2020, with a compound annual growth rate of 63.34%; the corresponding net profit attributable to the mother has increased from 0.07 billion yuan in 2016 to 408 million yuan in 2020, with an annual compound growth rate of 125.48%.

It can be seen that rabies and vaccines are the absolute pillars of Kanghua Bio's performance. Once this core product loses its exclusive advantage, its gross profit margin and performance growth rate will be impacted.

The best way to avoid this headwind is to develop more high-margin new products as soon as possible. However, Kanghua Bio's R&D investment is not high, with R&D expenses of only 58.2539 million yuan in 2020 and only 34.4305 million yuan in the first half of 2021.

Correspondingly, Kanghua Bio's investment in marketing is much more generous.

From 2018 to 2020, the sales expenses of Kanghua Bio were 249 million yuan, 217 million yuan and 371 million yuan, respectively. Among them, the marketing promotion fee was 190 million yuan, 173 million yuan and 326 million yuan respectively, accounting for 76.43%, 79.57% and 87.92% of the sales expenses, respectively.

It is worth noting that Kanghua Bio previously said in the listing prospectus that during the reporting period, the marketing model adopted by the company was "independent marketing model + external marketing model", and the sales expenses were mainly composed of promotion service fees. Therefore, some media have questioned that the main shareholder of Kanghua Bio's promoter is the legal representative of the customer, and there may be disguised bribery.