Company profile
The Grand Slam Group is a supplier of proprietary Chinese medicines, health care, skin care, personal care and other health care products mainly sold and distributed in Hong Kong. According to the Ipsos report, the company ranks third in the distribution market of proprietary Chinese medicines in Hong Kong, with a market share of about 8.1 per cent, based on 2018 revenues.
Sino-Thai viewpoint
Market factors affect Hong Kong's retail industry: according to the Chinese Medicine Council, there are about 1000 licensed proprietary Chinese medicine distributors in Hong Kong by the end of 2019. The distribution industry is mature and has many participants. According to the Hong Kong Tourism Board, medicine and Chinese herbal medicine products became one of the top five commodities purchased by overnight tourists in 2018. The rising demand of tourists for proprietary Chinese medicine has promoted retail, which has led to the growth of the distribution industry of proprietary Chinese medicine. However, due to the impact of social events in Hong Kong in 2019 and the outbreak of the new coronavirus in 2020, the retail industry in Hong Kong has had a tremendous impact.
Operating performance: from 2016 to 2019, the company's operating income was HK $370 million, HK $690 million and HK $700 million respectively. Proprietary Chinese medicine and health care products have always been the company's best-selling product categories, accounting for more than 79% of the total revenue. Among them, the revenue generated from sales to the largest customers accounted for 66.2%, 67.8% and 60.9% of the total revenue, respectively. Gross profit margins were 29.6%, 30.3% and 27.3%, respectively. The decline in 19 years was mainly due to (1) changes in product mix and increased sales of health care products with lower profit margins to meet customer demand. (2) discounts and rebates offered to chain retailers to encourage them to promote their products increased from 5.9% to 9.4% of total revenue. Staff costs accounted for a large part of administrative expenses, mainly due to the increase in the number of sales teams from 18 to 88; net interest rates were 17.4%, 14.6% and 7.8%, respectively.
Valuation: based on 800 million shares after the global public offering, the company's market capitalization is HK $11.8-1.22 billion, which is lower than the average of its peers in Hong Kong. In 19 years, the price-to-earnings ratio of the company is about 21.7-22.3 times, which is higher than the industry average; the price-to-book ratio is about 3.29-3.30 times, which is higher than the industry average. In terms of profitability, the ROE and ROA in 19 years were 46.1% and 14.9% respectively, higher than the industry average. The company introduced a cornerstone investor, Jacobson Group Treasury, an indirect wholly-owned subsidiary of Jacobson Medical, a leading pharmaceutical company in Hong Kong, to subscribe for about HK $80 million. The sponsor's 19-year track record is up and down. In addition, the company's second largest shareholder is China Resources Pharmaceutical, accounting for about 44% of the shares after the sale. Considering that the retail industry in Hong Kong has recently been greatly affected by the epidemic and the atmosphere in the new stock market is relatively low, we give it a rating of 52 points, with a rating of "not applying for purchase".
Risk hints: (1) market competition risk, (2) change in consumer preference, (3) high concentration of key customers, (4) macroeconomic impact