Published Time：

Author: Yuan Liang

June 30, 2022 was the cash dividend distribution date for Health Yuan (600380.SH) for the year 2021. According to the announcement, the company distributed a cash dividend of RMB 1.50 (including tax) per 10 shares, totaling RMB 278 million (including tax). In response, Health Yuan stated on the investor interaction platform that the company has implemented a proactive profit distribution policy, striving to return value to its investors while pursuing business performance and enterprise value. Since February 2021, the company has also implemented two share buybacks. The first buyback amounted to RMB 700 million, and the second buyback amounted to RMB 3-600 million. The shares repurchased in both instances were used to reduce the company's registered capital. As of the end of May 2022, the company had repurchased nearly RMB 500 million. According to relevant regulations, repurchases are considered equivalent to cash dividends.

The large-scale dividend distribution and substantial share buybacks fully demonstrate the board of directors' and management's confidence in the company's intrinsic value. According to East Money Choice, from 2019 to 2021, Health Yuan's revenue was RMB 11.98 billion, RMB 13.52 billion, and RMB 15.90 billion respectively, with a compound annual growth rate exceeding 15%. During the same period, its net profit attributable to the parent company was RMB 894 million, RMB 1.12 billion, and RMB 1.33 billion respectively, with a compound annual growth rate exceeding 20%. In the first quarter of 2022, the company's performance continued to grow, with revenue reaching RMB 4.66 billion, a year-on-year increase of 12.36%, net profit attributable to the parent company reaching RMB 461 million, a year-on-year increase of 25.52%, and non-net profit reaching RMB 457 million, a year-on-year increase of 36.47%. Both revenue and profit continued to show double-digit growth.

It is worth mentioning that Hong Zhoukan noted that in the secondary market, Health Yuan's stock price has steadily risen since the end of April. As of now, the stock price has accumulated an increase of over 30%, fully demonstrating that the market has fully recognized the company's growth potential. Recently, many institutions have given "buy" or "increase holdings" ratings.

R&D investment tripled in 5 years

Multiple key projects entered Phase III clinical trials in 2021

After years of steady operation and rapid development, Health Yuan has grown into a comprehensive pharmaceutical group driven by scientific research and innovation, integrating the R&D, production, sales, and services of pharmaceutical and health products. In order to always stay at the forefront of the industry and continuously achieve "leapfrog" development, the company has continuously increased its R&D efforts in recent years. R&D investment has increased significantly from RMB 609 million in 2016 to RMB 1.85 billion in 2021, tripling in 5 years. In 2021, the company's expensed R&D investment reached RMB 1.40 billion, with a growth rate exceeding 30%, and capitalized R&D investment reached RMB 453 million, with a capitalization ratio of 24.47%, generally maintaining a normal level in the industry. The company stated that in 2021, several key projects entered Phase III clinical trials, including V-01 and tobramycin inhalation solution. V-01, as the company's first product to conduct a multi-center Phase III clinical trial globally, has relatively large R&D investment.

While the company's R&D investment has been soaring, Hong Zhoukan found that Health Yuan's management expenses have decreased from RMB 951 million in 2020 to RMB 939 million in 2021. In response, Health Yuan stated that in 2021, the company further improved its group organizational structure and institutional settings, optimized its management structure, integrated resources, and established five management centers, achieving improved management efficiency.

In addition, it is worth mentioning that in addition to its own R&D efforts, Health Yuan is also actively investing in industrial layout. Data shows that as of the end of 2021, the company's long-term equity investment reached RMB 1.42 billion. Health Yuan stated that its long-term equity investment is mainly based on early industrial layout and seeking new industrial opportunities, not just for financial investment purposes. The company's current affiliated and joint ventures are mostly in the early stages of development, and their short-term financial performance is not the primary factor considered when selecting investment targets. At the same time, Health Yuan also stated on the investor interaction platform that the company's board of directors and management have always focused on the company's main business, continuously strengthening independent innovation, increasing external cooperation, continuously paying attention to cutting-edge technologies, and accelerating innovative R&D and international industrial layout.

Business structure and product matrix continue to be optimized

Endogenous growth advantage becomes more prominent

Public information shows that Health Yuan's business scope covers multiple fields, including chemical preparations, traditional Chinese medicine preparations, chemical raw materials and intermediates, diagnostic reagents and equipment, and health foods. Data shows that in 2021, the company's chemical preparation revenue reached RMB 9.10 billion, accounting for 57.81%, and raw material revenue reached RMB 4.69 billion, accounting for 29.79%. The combined revenue share of the two sectors reached 87.6%, nearly 90%, making them the company's two major "core" sectors. Among them, the chemical preparation sector, which contributes the most revenue, has the fastest growth rate, reaching 35.88%. Sales in key advantageous areas such as respiratory, digestive tract, and gonadotropins have achieved continuous and rapid growth, while the high-end and characteristic raw materials in the raw material sector have maintained steady improvement in both proportion and profitability.

Health Yuan is also actively responding to the centralized procurement of chemical drug preparations. Specific measures include, on the one hand, making preparations in advance in various aspects such as business, production, and terminals, and on the other hand, increasing innovation efforts to improve the company's competitiveness and promote steady operation. The company stated: "We will use the centralized procurement opportunity to quickly increase the volume of new products. The company's large-specification budesonide inhalation preparation (1mg), ipratropium bromide inhalation solution, and compound ipratropium bromide inhalation solution (winning the bid for the fifth batch of centralized procurement) have achieved explosive sales growth, bringing new profit growth points."

Data shows that in 2021, the company's revenue from traditional Chinese medicine preparations and diagnostic reagents and equipment also reached 8.03% and 3.99% respectively. It is understood that the group's main traditional Chinese medicine products are currently under Lizhu Group, which has 86 traditional Chinese medicine product approvals, including 21 exclusive products. The sales of key products such as Shenqi Fuzheng Injection and antiviral granules account for a large proportion, and there are many potential products, including Jingfu Zhiyang Granules, Stomatitis Granules, and Jiuwei Yinao Granules, forming a rich product reserve. The company stated: "Although the group's main traditional Chinese medicine products are currently under Lizhu, the traditional Chinese medicine business is a key strategic development sector for the group. Future layouts in the traditional Chinese medicine business will revolve around two strategic cores: firstly, laying out the entire industrial chain, from planting medicinal materials to production and sales; secondly, taking a high-end and characteristic route. In terms of form, in addition to internal R&D and incubation, cooperation is also not ruled out. We are already laying out and exploring products encouraged by the current national policies."

In terms of diagnostic reagents and equipment, Lizhu Reagent, a subsidiary of the company, has also built multiple core technology platforms and has a strong market influence in the fields of respiratory infections, infectious diseases, and drug concentration monitoring. Some products even hold a leading position in the domestic market. Currently, with the increasing emphasis on health and the corresponding increase in medical and healthcare expenditure, and the continuous increase in the number of hospitals and community health service centers, the market demand for in-vitro diagnostic products will continue to expand, which is expected to drive steady improvement in this sector of the company.

Looking to the future, Health Yuan will continue to move forward with the courage and responsibility of "starting from scratch," fully accelerating the progress of innovative R&D and the commercialization of new products, and at the same time, deeply planning the next generation of product matrices to further enhance the company's future competitiveness.

Disclaimer: This document is for reference only and does not constitute investment advice.

From: Securities Market Red Weekly