Yesterday, Shanghai Fosun Pharmaceutical released the third-quarter results report. According to the report, in the first three quarters, the company achieved a cumulative operating income of 27.048 billion yuan, an increase of 22.38% over the same period last year, a net profit of 3.565 billion yuan, an increase of 43.80% over the same period last year, and a non-return net profit of 2.475 billion yuan, an increase of 20.19% over the same period last year.

This performance has not been recognized by the market. Today, Shanghai Fosun Pharmaceutical's share price dived sharply after a slight rise. As of the close, the company's H shares fell 4.29% to HK $36.80, with a total market capitalization of HK $94.315 billion, while A shares fell 2.32% to 49.73 yuan, with a total market capitalization of 127.453 billion yuan.

In the past seven months, Shanghai Fosun Pharmaceutical has experienced a rapid rise and a sharp decline in the share price like a roller coaster.

From August to October, the company's share price plummeted by 50%. By contrast, the company's share price soared 100 per cent in four months from the end of March to early August this year. The sharp rise and fall in a short period of time reflects the pressure of Shanghai Fosun Pharmaceutical being collected in the pharmaceutical business and the weakness of COVID-19 vaccine growth.

01

The performance fell short of expectations

Shanghai Fosun Pharmaceutical's growth in total revenue in the first three quarters was mainly attributed to the continued volume of new products such as Hanlikang, Hanquyou and Su Kexin, which promoted income growth and the contribution of mRNA COVID-19 vaccine in Hong Kong, Macao and Taiwan.

Although revenue has increased, the company's gross profit margin is experiencing a decline.In the first three quarters of this year, the company's gross profit margin was 50.53%, down 5.34 percentage points compared with the same period last year, and 9.26 percentage points lower than the same period in 2019 before the epidemic.

From a specific business point of view, the decline in the company's gross profit margin in the first three quarters is mainly due to the decline in the gross profit margin of the mRNA vaccine Fubitai and the impact of collection on some generic drugs.

Last year, Shanghai Fosun Pharmaceutical won the exclusive agency of BioNTech COVID-19 vaccine in China and became a popular vaccine concept stock, and with the release of COVID-19 vaccine in Hong Kong, Macao and Taiwan, the revenue increased greatly, while the stock price also skyrocketed. However, in terms of gross profit margin, COVID-19 vaccine Fupitai is driving down the company's overall gross profit margin.

Under the license agreement previously signed with BioTech, Shanghai Fosun Pharmaceutical is required to pay gross profit sharing to BioNTech SE and to pay a total of $70 million when the sales reach the corresponding milestone (resulting in more than $500m in sales in the region). According to the license Agreement, Shanghai Fosun Pharmaceutical set aside this sales milestone in the first three quarters, which led to a decline in the gross profit margin of COVID-19 's vaccine business.

In addition, after the selection in the collection, the gross profit margins of generic drugs such as Ulitone (non-bustatin tablets) and Bonzhi (pivastatin calcium tablets) also decreased.

In the case of the decline of gross profit margin, the reason why Shanghai Fosun Pharmaceutical was able to achieve the growth of net profit is mainly due to the control of the three fees and the substantial increase in fair value changes. The first three quarters of this yearThe company's sales expense rate, management expense rate and financial expense rate were 25.19%, 8.32% and 1.45% respectively, which decreased by 3.23%, 0.74% and 0.75% respectively compared with the same period last year. On the other hand, the fair value change income of the company soared by 38527.73%, mainly due to the increase in the fair value of financial assets such as BioNTech.

02

Where are the new growth drivers?

In the past four years, Shanghai Fosun Pharmaceutical's performance has entered a state of slow growth. From 2017 to 2020, the company's net profit and net profit after deduction grew at a compound annual rate of 5%.

Benefiting from the volume of Fubitai in Hong Kong, Macao and Taiwan and the volume of new products such as Hanlikang, Hanquyou and Su Kexin, the company's revenue and profits increased to a certain extent from last year to this year compared with the past.

From the perspective of revenue structure, the company's pharmaceutical business achieved 12.248 billion yuan in revenue in the first half of the year, accounting for 80.86% of the total revenue, which is Shanghai Fosun Pharmaceutical's largest source of revenue.

However, Shanghai Fosun Pharmaceutical's generics dividend is gradually declining with the collection. As of the first half of the year, a total of 19 products that have passed or are considered to have passed the generic drug consistency evaluation have been selected in five batches of centralized volume procurement of drugs. And collection will also have a negative impact on the company's gross profit margin.

With the excellent performance of Fubitai mRNA vaccine in the first half of the year, the stock price of Shanghai Fosun Pharmaceutical has successfully risen, and it has become a sharp tool for the growth of the company under the pressure of collection, and its advantage may no longer be obvious in the future.

At present, the company's mRNA COVID-19 vaccine BNT162b2 in China (excluding Hong Kong, Macao and Taiwan) phase II clinical trials are still in progress. In addition, the vaccination rate of domestic COVID-19 vaccine has been as high as 79%. When the strengthening needle has not yet been determined whether to be implemented, there is not much new market space for COVID-19 vaccine.

Collection pressure continues, superimposed new growth engine COVID-19 vaccine dividend period gradually passed, which is an important reason why Shanghai Fosun Pharmaceutical's share price has been falling in the past three months.

In the face of collection pressure and the decline of COVID-19 vaccine dividend period, Shanghai Fosun Pharmaceutical also had to transform innovative drug research and development.In the first three quarters, the company's R & D expenditure rate was 8.92%, an increase of 0.42% over the same period last year and 3.84% higher than that of 2019.

Recently, the company released a fixed increase plan of 4.983 billion yuan, of which 2.22 billion yuan was used for innovative drug investment. The company's CAR-T cell therapy product is also expected to start production in the second half of this year.

However, there are still voices of mistrust of Shanghai Fosun Pharmaceutical in the market because Shanghai Fosun Pharmaceutical's own innovation ability is not strong and is keen on investment expansion.

Compared with Hengrui Pharmaceutical, which started with generic drugs and is now transforming innovative drugs, Shanghai Fosun Pharmaceutical's expansion in innovative drugs mainly depends on the acquisition of related enterprises and commercial introduction, while Hengrui Pharmaceuticals mainly depends on independent research and development.At the same time, Hengrui Pharmaceutical is more focused on pharmaceutical business, while Shanghai Fosun Pharmaceutical's business is more extensive, not only innovative drugs and generic drugs, medical services, medical diagnosis, medical devices are involved.

In the first half of the year, Shanghai Fosun Pharmaceutical's medical device and medical diagnosis business achieved an operating income of 2.837 billion yuan, an increase of 7.42% over the same period last year, and a profit of 454 million yuan, up 4.61% over the same period last year. The medical and health service business realized operating income of 1.844 billion yuan, an increase of 35.59% over the same period last year, and realized profits of-15 million yuan, a decrease of 17 million yuan over the same period last year.

However, in terms of the proportion of revenue, the proportion of medical devices and medical diagnosis business and medical services is still relatively low, which is still unable to drive the overall performance of the company in the short term, and medical devices and medical diagnosis business still need to face the risk of collection.

In the past, Shanghai Fosun Pharmaceutical made a lot of money from investment income. From 2018 to 2020, Shanghai Fosun Pharmaceutical's investment income was 1.815 billion yuan, 3.665 billion yuan and 2.284 billion yuan respectively, accounting for 60%, 95.21% and 57.95% of the net profit respectively.

But at the same time, too much investment business makes Shanghai Fosun Pharmaceutical's reputation also increase.In the first half of the year, the company's goodwill reached 8.622 billion yuan.

During the year, Shanghai Fosun Pharmaceutical, who is used to buying and buying, began to sell some subsidiaries, such as Yaneng Biology, Tianjin Pharmaceutical Co., Ltd., East Zhejiang Hospital, Foshan Chanxi, and so on, with a total recovery of more than 4.1 billion yuan.

Focusing on the main business is a new slogan shouted by Shanghai Fosun Pharmaceutical. However, it is still unknown where Shanghai Fosun Pharmaceutical's new way out in the future is innovative drugs, medical devices or medical services.