Lost in stocks, Yunnan Baiyao has invested tens of billions in Shanghai Pharmaceutical’s century-old “short board” to be solved

The marriage of giant pharmaceutical companies has ushered in a major shock in the pharmaceutical business field
.

On May 12, Shanghai Pharmaceuticals and Yunnan Baiyao announced major moves
.

Shanghai Pharmaceuticals intends to privately issue no more than 853 million A shares to specific targets at a price of 16.

The targets of Shanghai Pharmaceuticals' fixed increase this time are Shanghai Tandong and Yunnan Baiyao
.

The two issuance targets will subscribe for 187 million shares and 666 million shares respectively at the same price.

Giants marry, Yunnan Baiyao will become the second largest shareholder of Shanghai Pharmaceuticals

According to data, Shanghai Tan Dong is a wholly-owned subsidiary of Shanghai SIIC.
Up to now, SIIC Group and its wholly-owned subsidiaries, Shanghai SIIC and Shanghai Pharmaceuticals Group together hold 1.
04 billion shares of Shanghai Pharmaceuticals, accounting for its total 36.
59% of the share capital, the actual controller of Shanghai Pharmaceuticals is still the Shanghai SASAC, and there is no change
.

If this issuance is completed, Yunnan Baiyao will hold 18.
02% of Shanghai Pharmaceuticals and become its second largest shareholder
.

Yunnan Baiyao revealed that the company intends to hold equity in Shanghai Pharmaceuticals for a long time and has not considered future exit plans

       At the same time, Yunnan Baiyao, as a strategic investor, intends to nominate 1 candidate for executive director, 1 candidate for non-executive director and 1 candidate for supervisors to Shanghai Pharmaceuticals in accordance with the "Strategic Cooperation Agreement" signed with Shanghai Pharmaceuticals
.

       According to the "Listing Rules", Yunnan Baiyao will recognize Shanghai Pharmaceuticals as a related party of the company based on the principle of substance over form
.

Therefore, this transaction constitutes a connected transaction

       Yunnan Baiyao revealed that as of December 31, 2020, the net assets attributable to shareholders of the parent company for 18.
02% of Shanghai Pharmaceuticals was 9.
864 billion yuan, accounting for 25.
73% of the net assets attributable to shareholders of the parent company of listed companies in the same period; in 2020, Shanghai The 18.
02% of the shares in Pharmaceuticals corresponds to the net profit attributable to shareholders of the parent company of 810 million yuan, accounting for the shares of the parent company attributable to the listed company in the same period
.

       Dong's net profit ratio is 14.
69%
.

At the same time, according to the "Strategic Cooperation Agreement", after the completion of this non-public offering, Shanghai Pharmaceuticals will not be less than 40% of the distributable profit for the year if the conditions are met

       Founded in 1902, Yunnan Baiyao is a veritable century-old Chinese time-honored brand, and its main economic indicators are firmly in the forefront of China's traditional Chinese medicine industry
.

Shanghai Pharmaceuticals also has a long history in the Chinese medicine sector.

       The "marriage" of the two giants has aroused widespread concern, and what sparks it can create in the future has also made the industry look forward to it
.

       The hidden worries of the century-old shop: the main business is sluggish, and they are keen on stocks.
.
.

       As a century-old traditional Chinese medicine brand, Yunnan Baiyao is also entering a critical period of transformation
.

From the perspective of Q1 performance last year and this year, Yunnan Baiyao has been interpreted by the outside world to be a bit "not doing business properly.

       Yunnan Baiyao's 2020 annual report shows that its annual revenue was 32.
743 billion yuan, a year-on-year increase of 10.
38%; total profit was 6.
801 billion yuan, a year-on-year increase of 43.
9%; net profit was 5.
516 billion yuan, a year-on-year increase of 31.
85%
.

       According to data, Yunnan Baiyao’s main business is commercial sales and industrial sales.
Commercial sales are mainly pharmaceutical circulation business.
Industrial sales include pharmaceuticals, health products, and Chinese medicine resources
.

The pharmaceutical circulation business accounts for 2/3 of its total operating income, but its profits are mainly driven by industrial sales

       In industrial sales, the production and sales of oral cleaning products are the most profitable business of Yunnan Baiyao, which mainly involves the sale of toothpaste, etc.
, and contributes 1.
894 billion yuan in profit for the whole year of 2020
.
It is understood that Yunnan Baiyao's toothpaste market share continues to rank first in the country, with a market share of 22.
2% at the end of the year
.

       It is also worth noting that half of Yunnan Baiyao's net profit is driven by "stock speculation
.
" According to its financial report, the company’s fair value change profit and loss for the year was as high as 2.
24 billion yuan, mainly due to the rise in purchased stocks and funds; investment income reached 392 million yuan, mainly composed of gains from the holding and disposal of trading financial assets and The company's entrusted wealth management income, the two subjects achieved a total of 2.
63 billion yuan, accounting for more than 36% of the total profit
.

       The financial report of Yunnan Baiyao shows that the company invested 13.
834 billion yuan in domestic and overseas stock markets in 2020
.
Among them, heavy warehouses include Xiaomi Group and Yili, which hold a market value of 3.
148 billion yuan and 1.
132 billion yuan respectively
.
In addition, Yunnan Baiyao also holds shares of Tencent Holdings and Hengrui Pharmaceuticals, with a market value of 857 million yuan and 474 million yuan respectively
.

       In contrast, Yunnan Baiyao's R&D investment in 2020 was 181 million yuan, an increase of 4.
14% year-on-year; R&D investment accounted for only 0.
55% of revenue, a decrease from 0.
59% in 2019
.
However, the company's sales expenses are not low
.
Sales expenses in 2020 will reach 3.
795 billion yuan, which is 21 times the R&D investment
.

       Relevant statistics show that in 2012, Yunnan Baiyao's revenue grew by 22.
13% year-on-year, and fell to 10.
22% by 2015
.
In 2016-2017, it was less than 9%.
In 2018, there was an increase, but compared with the high growth rate in the past, the performance was not good
.

       Yunnan Baiyao is also seeking transformation
.
It revealed in the 2020 financial report that the company takes medicines, health products, traditional Chinese medicine resources, and provincial medicine as its core business segments.
At the same time, it strives to expand the fields of medical aesthetics and orthopedics, and steadily promotes the industrial hemp business in accordance with the law, and cultivates new performance.
Point of growth
.

       While actively seeking new performance growth points, Yunnan Baiyao, which is keen on stocks, accidentally stumbled this year
.
On April 27, Yunnan Baiyao announced that for the first quarter of 2021, the net profit for the first quarter was 763 million yuan, a year-on-year decrease of 40.
48%
.
Among them, the trading financial assets held by the company lost 788 million yuan
.
As of the end of the reporting period, the income from changes in the fair value of the aforementioned assets was -789 million yuan, a decrease of 439.
05% from the 233 million yuan at the beginning of the period
.
Mainly invested in Xiaomi Group, Yili, and Hengrui Medicine, which lost 690 million, 110 million, and 82 million respectively
.
It can be said that "stocks are risky, and investment needs to be cautious
.
"

       Holding group for warmth, accelerating integration of the pharmaceutical and commercial fields

       With the deepening of medical reform, China's pharmaceutical industry is undergoing tremendous changes, and century-old traditional Chinese medicine stores are also actively seeking transformation and upgrading
.
With its main business downturn and stock market failures, Yunnan Baiyao has invested tens of billions of dollars in Shanghai Pharmaceuticals.
The strong cooperation between giant companies can be another option for the "century-old Chinese medicine brand"
.

       Regarding the background of this transaction, Yunnan Baiyao stated that one of the main reasons is the continuous deepening of state-owned enterprise reforms and optimization and reorganization of state-owned capital.
Achieve breakthrough development through the combination of endogenous growth and extensional expansion
.

       In 2016, Yunnan Baiyao initiated a mixed reform
.
In December of that year, the Yunnan Provincial State-owned Assets Supervision and Administration Commission, Xinhuadu Industrial Group Co.
, Ltd.
, and Yunnan Baiyao Holding Co.
, Ltd.
reached a cooperation agreement to introduce Xinhuadu as a strategic investor in Yunnan Baiyao through capital increase
.
Chen Fashu, the head of Xinhua Metropolis, once aspired to be the richest man in Fujian Province, and was known as the "stock god" by the public
.
In the eyes of industry professionals, Yunnan Baiyao's keen interest in "stocking" may also be related to this
.

       China's medical reform has entered the deep water zone.
The "two-invoice system" and "zero mark-up" have been basically implemented in national-level public hospitals.
The integration of the pharmaceutical business field has been accelerating, and the industry concentration has further increased
.

       It can be seen that in order to further highlight the brand advantages of drugs and health products, pharmaceutical business is still an important part and key link of Yunnan Baiyao's core business
.
As a large-scale pharmaceutical group in the entire industry chain, Shanghai Pharmaceuticals has its advantages in the pharmaceutical business sector
.
Moreover, Shanghai Pharmaceuticals also has its own layout in the innovative drug sector, which may make up for the “shortcomings” of Yunnan Baiyao's research and development
.
In this cooperation, the two parties also stated that in terms of product interaction innovation, they will rely on the high-quality resources of both parties to establish a joint research institute or product innovation cooperation platform, focusing on innovative research on disease prevention and treatment
.

       With the continuous expansion of business scope and scale of operation, Shanghai Pharmaceuticals also needs a large amount of capital injection
.
Data show that from 2016 to 2020, the ending balance of Shanghai Pharmaceuticals' short-term loans increased from 9.
628 billion yuan to 20.
139 billion yuan, and the ending balance of long-term loans increased from 838 million yuan to 1.
184 billion yuan, and the debt-to-asset ratio rose from 55.
48% to 63.
31%
.

       In Q1 of 2021, Shanghai Pharmaceuticals realized revenue of 51.
6 billion yuan, a year-on-year increase of 27.
57%; of which, the pharmaceutical industry realized revenue of 6.
466 billion yuan, a year-on-year increase of 14.
43%; the pharmaceutical business realized revenue of 45.
134 billion yuan, a year-on-year increase of 29.
7%
.
The company achieved a net profit of 2.
12 billion yuan attributable to the parent, a year-on-year increase of 104.
24%; deducting non-net profit was 1.
213 billion yuan, a year-on-year increase of 23.
39%
.

       This time, 14.
384 billion yuan of funds were raised through private placement.
For Shanghai Pharmaceuticals, this fundraising can help the company reduce financial costs and solve some debts.
At the same time, it can further develop innovation and research and improve the competitiveness of the pharmaceutical industry.
Consolidate the leading position of pharmaceutical business
.
The "marriage" between Yunnan Baiyao and Shanghai Medicine is beneficial to both parties
.

       In addition, affected by the news that the country is vigorously promoting the development of Chinese medicine, Chinese medicine companies focusing on innovation and consumption have ushered in good news
.
Yunnan Baiyao, a leader in consumer products, may further accelerate its own transformation by cooperating with Shanghai Pharmaceuticals this time
.
At the same time, the "shortcomings" of Yunnan Baiyao also reflect the dilemma of a century-old traditional Chinese medicine company.
How to achieve innovative breakthroughs is a long way to go
.