Author: villike
"Confusion is spreading."
I mentioned in the previous article analyzing East China Medicine :
“Up to the time I read the current assets, the company didn’t have any big problems, or it caused me any doubts. However, some of the following phenomena started to make me a little doubtful, and I started to reflect on it. , How much do I know about this company? ”
In this article, let’s continue to look at the report and see what confuses me.
01 Confusing medical beauty
First of all, there are non-current assets. As mentioned in the previous article, this amount is 7.7 billion, accounting for 36% of the total assets. Its structure is:
Productive assets (fixed assets under construction) are 4 billion, accounting for 52%. Since they are the bulk, we will have to look at the specific content later;
Goodwill is 1.5 billion , accounting for 19;
Intangible assets are 1.5 billion, accounting for 19;
Long-term equity investment is 200 million, accounting for 3 (mainly 4 joint ventures, the amount is small and the problems are not (large);
Investment in other equity instruments is 200 million, accounting for 3 (mainly investments in 5 companies, which are non-trading equity instrument investments. The accounting treatment method is: measured at fair value and Equity instrument investments whose changes are included in other comprehensive income are not a big problem).
There is nothing to talk about in terms of fixed assets. Let’s take a look at the projects under construction. There are 1.8 billion per year, mainly three pieces:
The second phase of the biomedical science and technology park project is 1.3 billion;
The macromolecular drug research and development professional laboratory (pilot) technical transformation project is 200 million;
Preparation Building 3 and supporting engineering and technological transformation projects worth 200 million.
After reading this, there will be a question mark: What are the products of this biomedical science and technology park project with relatively large investment? This investment accounts for more than half of the company's net profit in 2019, and will need to be studied further in the future.
Let’s take a look at goodwill. This is an area that is often prone to thunderstorms in company statements. It is mainly caused by sudden “impairment losses”. In other words, originally The assets on the books suddenly were said by the company to be less valuable, or even worth 0.
In the notes to the report, I saw that goodwill was 1.5 billion, of which 1.4 billion came from a company called Sinclair Pharma Limited. Then I searched for this company in the annual report. I discovered a phenomenon: This company seems to often have legal disputes with some agents. In 2018, the company had disputes with two companies and accrued an estimated liability of 50 million yuan. This is a bit strange. This is a product in the medical beauty industry. Is this something that often happens between downstream and downstream?
After searching again, it was mentioned in the annual report, "The company's wholly-owned subsidiary Sinclair Pharma Limited is headquartered in London, UK. It is the company's international medical and aesthetic business operation platform, with sales throughout the country. More than 60 countries and regions around the world. ”
Let’s take a look at this company’s situation.
It can be seen in the annual report that the company's main business is "the research and development, production and sales of medical beauty products", with a registered capital of 200 million, total assets of 900 million, and a net Assets are 400 million, revenue is 500 million, net profit is 100 million, diluted ROA11, diluted ROE25, it seems that the profitability is very good.
It seems that the company is going to enter the medical beauty industry, and it will do so "internationally".
From the perspective of the management, this matter must be ambitious and based on the original intention of making the company bigger.
However, from the perspective of investors, there is a question mark. After all, the company is entering a brand new industry. If the company meets the requirements of "strong competitive advantage" and "strong competitive advantage" in the original industry, With the two conditions of "the industry ceiling can be expected" (such as Gree), diversification is the inevitable path, but if it is not met, this matter will be questionable. After all, a company's capabilities are limited, and the result of multi-faceted attacks is often failure on all sides.
Looking back at the goodwill, of the 1.5 billion in goodwill, 1.4 billion belongs to the previous medical aesthetic company, which means that the company’s acquisition price is approximately 1.8 billion. , the acquisition price is 18 times PE and 5 times PB. From the perspective of a non-listed company, this acquisition price is really not low.
In addition, the company has goodwill formed by 13 acquired companies on its books, and many of these companies are "Huadong Pharmaceutical XX Company". It seems that they were originally fighting against The listed companies have the same name. I wonder if it is related to related transactions? I searched through the 2019 annual report and couldn't find any relevant explanation. Fortunately, the amount is not large, so I can put it aside for now.
The good news about goodwill is that there are no major problems with impairment provisions. There are two existing goodwill impairments, one is "Shaanxi Jiuzhou Pharmaceutical Co., Ltd. "When the company previously acquired "Xi'an Bohua Pharmaceutical", the latter had already made a provision for impairment of goodwill, and another "Hangzhou Peiyuantang Clinic" with impairment of goodwill seemed to have operational problems.
After looking at goodwill, let’s look at intangible assets.
The company's intangible assets are different from other companies. Under normal circumstances, the absolute majority of intangible assets are land use rights, but if this company is based on the original book value at the beginning of the year, Land use rights account for 15%, non-patented technologies account for 45%, and trademarks and franchise rights account for 40%. These two are common among pharmaceutical companies, and they are often underestimated because they are accounted for at cost, but these drugs Patents often bring value far higher than the cost.
02 Profit looks good
The second table looks at the cash flow statement.
At the end of 2019, the company had cash and equivalents of 2.2 billion, a decrease of 200 million compared with the beginning of the year. The operating, investment and financing cash flows were 2 billion and -16 respectively. 100 million and -600 million. It is not difficult to see that the company's self-hematopoietic function is good.
Capital expenditure is 1.4 billion, free cash flow is 600 million, and free cash ratio is 2. Even last year, capital expenditure was only 900 million, and the free cash ratio was only 4. The company does not seem to have much free cash flow. Think of it Such high accounts receivable and inventory are understandable.
By the way, calculating the company's salary package, the per capita salary is 190,000, mainly for sales, technical and administrative staff, and the salary is still good.
Next, look at the income statement.
In 2019, the company's first-year revenue was 35.4 billion, direct operating costs were 24.1 billion, gross profit was 11.3 billion, and gross profit margin was 32. The gross profit margin was okay, although not high, but It's definitely not low, but doesn't it mean that pharmaceutical companies have very high gross profit margins?
Then calculate the asset turnover rate, 1.74, the company has high turnover.
There is a question here. As mentioned earlier, the company's gross profit margin is neither high nor low, but it is different from that of ordinary pharmaceutical companies, and its asset turnover rate is also different from that of other pharmaceutical companies. For general enterprises, it is neither high nor low. In general, most manufacturing industries are below 1. If they are in the fast-moving consumer goods category, most are above 2. This combination of gross profit margin and turnover rate is not common. We will elaborate on it later when analyzing the annual report. .
Then jump to the operating results. The net profit attributable to the parent company is 2.8 billion, and the net profit margin is 8. From a gross profit margin of 32 to a net profit margin of 8, the 24 in the middle are distributed like this:
Sales expenses are 5.8 billion, accounting for 16;
Management expenses are 1.1 billion, accounting for 3;
R&D expenses are 1.1 billion , accounting for 3;
Income tax is 500 million, accounting for 1, accounting for 14 of the total profit, which is relatively normal.
Simply looking at this set of data, the company is driven by marketing. When looking at sales expenses, "travel expenses" and "product promotion and market maintenance expenses" are 2.4 billion, accounting for 2.4 billion in sales. The expense is 41. Considering that the company is a pharmaceutical company, we all know what these expenses are.
The advertising fee is only 150 million, which is a very small proportion. It shows that the company relies on local promotion rather than aerial bombing. From this perspective, unless the company’s products are leading, the brand It is difficult to form, but having said that, pharmaceutical companies do not have any brand premiums to speak of, but only patent premiums, or patent monopolies.
Sales expenses include sales staff salary, which is 1.3 billion per dollar, with 6,060 employees and an average salary of 210,000 per person, which is not bad.
Since the company is a pharmaceutical company, research and development expenses are also very important. However, as we saw earlier, the ratio of research and development expenses to revenue is only 3.
Furthermore, among the R&D expenses, what are really related to R&D are "technical service fees" and "calibration and testing fees", which are 400 million, accounting for revenue Compared with 1, from this perspective alone, the company is definitely not a R&D-driven enterprise, but later, I gradually changed this view and will wait for detailed analysis in the following articles.
03 Knocking on the blackboard
At this point, I have dug through the three reports. The summary is as follows:
p>
The industry chain has a good position. There are many upstream and downstream accounts payable, advance receipts, deposits, temporary collections, etc., especially the upstream has a strong say.
The financial structure is sound, with an interest-bearing debt ratio of only 10.
As a semi-asset-light company, current assets are 64%, but mainly receivables and inventories, accounting for 80%.
The company is investing a lot of money to build a "biomedical science and technology park", which needs to be further understood.
The company acquired a British medical beauty company, which seems to be very profitable, but to operate the medical beauty business globally, what kind of move is this?
The company relies on local promotion and is a sales-driven company. It has a net profit margin of 8, a turnover of 1.74, an equity leverage of 1.7, and an ROE of about 25.
Overall, the company's financial data is good, but in terms of diversification and competitive advantages, the information the report gives me is contradictory and confusing. This is the Huadong Medicine series In the second article, I will give my own opinions on these issues one by one as it unfolds.
Author: villike