Moutai is recognized as a hard currency for gifting and entertaining guests.

Little do they know that there was a time when Moutai and zhangzhou pientzehuang pharmaceutical were the top choices for high-end business banquets. In the hearts of some Fujian people, zhangzhou pientzehuang pharmaceutical even holds a higher status than Moutai.

After the pandemic, the prices of Feitian Moutai and zhangzhou pientzehuang pharmaceutical rose steadily, reaching a peak in 2021, with the price of zhangzhou pientzehuang pharmaceutical once skyrocketing to 1600 yuan per piece, but it began to plummet afterward.

Recently, the price of Feitian Moutai has repeatedly fallen to around 2200 yuan per bottle. As a "difficult brother", zhangzhou pientzehuang pharmaceutical has also seen prices decline over the past two years, with many scalpers' prices now below the official guidance price of 760 yuan per piece.

The continuous price decline reflects that those holding the scarce "Moutai" are gradually falling into a growth crisis, evident in the slowing profit growth and continuous drop in stock prices.

Compared to the historic high in 2021, the stock prices of Kweichow Moutai and Zhangzhou Pientzehuang Pharmaceutical have almost been halved.

In the past, there was a belief that every drop in the stock price of 'Moutai and others' was an opportunity to get on board.

Is it still the same now?

01

As fellow pharmaceutical companies in Fujian, both focusing on liver medicine, recently, Zhangzhou Pientzehuang Pharmaceutical invested 0.196 billion to indirectly acquire shares in Fujian Cosunter Pharmaceutical, where the shareholders of Fujian Cosunter Pharmaceutical sold their equity at a discount, playing out a story of 'liver liver mutual illumination'.

Aohua Group transferred its 8 million shares of Fujian Cosunter Pharmaceutical to Yuan Mountain Fund at a price of 0.196 billion yuan, with the transfer price being 80% of the closing price on the trading day before the agreement was signed.

The largest investor in Yuanshan Fund is Zhangzhou Pientzehuang Investment Management Co., Ltd., and most of the other general partners and limited partners are state-owned enterprises under Fujian Zhangzhou, which have close ties to Pientzehuang.

Therefore, after the trade is completed, Pientzehuang will indirectly invest in Guangshengtang.

The biggest question about this trade is whether traditional Chinese medicine and Western medicine can cooperate in the field of liver disease.

Compared to Pientzehuang, Guangshengtang is much less well-known. Early on, Guangshengtang's products were relatively chaotic, including traditional Chinese medicines for hepatitis, as well as hypertensive tea and weight-loss tea, focusing mainly on generic drugs with low R&D investment. However, the market for generic drugs has many similar products, resulting in fierce competition, and Guangshengtang has no significant advantage.

Later, Guangshengtang gradually identified the market and began to focus on the R&D, production, and sales of nucleoside antiviral drugs for hepatitis B, which allowed it to gradually gain a certain market share.

As products were included in centralized procurement, prices further declined, and the gross margin of centralized procurement drugs dropped significantly.

Taking Guangshengtang as an example, in 2023, the gross margin of the centralized procurement channel was only 16.86%, far lower than the 75.40% for direct sales and 30.70% for distribution, leading to a significant decline in the company's profitability.

Hence, since its listing, Guangshengtang has clearly stated its intention to transition towards innovative drug enterprises.

The high research and development investment in innovative drugs, combined with the continuous compression of traditional business profits, has put greater performance pressure on fujian cosunter pharmaceutical in recent years. From 2021 to 2023, fujian cosunter pharmaceutical suffered consecutive losses, with a cumulative loss of 0.511 billion yuan.

For zhangzhou pientzehuang pharmaceutical, the returns from this investment are not significant, but zhangzhou pientzehuang pharmaceutical urgently needs to seek new growth directions through investment to maintain performance growth.

In August of this year, zhangzhou pientzehuang pharmaceutical also planned to invest 0.254 billion yuan to acquire 100% equity of Mingyuan Fragrance held by Zhangzhou Guotou Company, thereby indirectly acquiring 30% equity of Shuixian Pharmaceutical, which is China's oldest essential oil brand.

However, there are greater doubts about this trade, as the potential of the essential oil market is limited, and it is difficult for zhangzhou pientzehuang pharmaceutical's business to achieve synergy, with an excessively high valuation, raising many questions.

Soon, the exchange issued a regulatory letter to zhangzhou pientzehuang pharmaceutical, requesting further verification and explanation of related issues, and after responding to some questions, zhangzhou pientzehuang pharmaceutical announced that the trade would be temporarily halted.

The series of acquisition moves may reflect zhangzhou pientzehuang pharmaceutical's current anxiety from one perspective.

In the first half of this year, zhangzhou pientzehuang pharmaceutical's revenue and net income growth rates reached their lowest levels for the same period since 2016, with net income even declining year-on-year in the second quarter, marking the first drop in nearly seven years.

Compared to the peak in 2021, the stock price of zhangzhou pientzehuang pharmaceutical has fallen by nearly half. For zhangzhou pientzehuang pharmaceutical, which relies on the zhangzhou pientzehuang tablet as its main product, maintaining high growth over the long term is quite difficult.

02

When the fujian people, who love zhangzhou pientzehuang the most, no longer regard it as an essential gift and do not consume it before and after banquets, combined with the consumer nature of zhangzhou pientzehuang, the impact under the trend of consumption downgrade becomes more severe.

It is undeniable that zhangzhou pientzehuang still possesses a value that is hard for other products to replace.

Taking beijing tongrentang's major product, an gong niu huang wan, as an example, although beijing tongrentang holds more than 50% of the market share for an gong niu huang wan, it is not an exclusive product of beijing tongrentang.

Currently, the number of companies that have obtained production licenses for an gong niu huang wan has exceeded 120, and even zhangzhou pientzehuang's an gong niu huang wan holds nearly 5% of the market share.

However, zhangzhou pientzehuang's zhangzhou pientzehuang tablets still possess absolute rarity due to the dual confidentiality of its ingredients and processes.

With the rise in prices of natural musk and natural cattle gall, the price of zhangzhou pientzehuang has steadily increased over the past 20 years, from 325 yuan per piece in 2004 to 760 yuan per piece now.

However, the rise in prices has not affected users' enthusiasm for purchases. Between 2014 and 2023, Pientzehuang's revenue skyrocketed from 1.454 billion yuan to 10.06 billion yuan, and its net income increased from 0.429 billion yuan to 2.797 billion yuan.

Pientzehuang's double-digit annual sales growth far exceeds the single-digit compound annual growth rate of its tablet prices, indicating that consumers of Pientzehuang are relatively insensitive to price. In the long term, Pientzehuang's performance can still remain stable.

Combined with the common characteristics of the traditional Chinese medicine industry, which includes relatively low investment in research and development, Pientzehuang's research and development expense ratio is only about 2%. For Pientzehuang, it can be said that it is counting money while sitting on a mountain of gold.

Beyond stable performance, Pientzehuang has already begun to seek a second growth curve for the company.

In recent years, Pientzehuang has actively developed its cosmetic business and now owns several skincare and hair care brands, including 'Pientzehuang', 'Queen', and 'Dr. Jin'. However, their share of overall income is still less than 20%.

In the pharmaceutical industry, Pientzehuang's An Gong Niu Huang Wan is also gradually capturing a certain market share and is regarded as a potential blockbuster.

The anxiety about growth is not limited to zhangzhou pientzehuang pharmaceutical; similarly, kweichow moutai has also taken various measures in recent years, such as co-branding and launching kweichow moutai ice cream, to cultivate young users. Meanwhile, major traditional chinese medicine companies, except for yunnan baiyao group which has found success in the daily chemicals industry limited to toothpaste, have not been able to step outside their own sphere and find new directions for growth.

For these companies, maintaining stability to protect their territory certainly hinders growth, but merely relying on their established status will not yield results, and innovating to gain market share presents even greater risks.

The question of whether to change or remain the same is quite serious.

Currently, zhangzhou pientzehuang pharmaceutical has already passed the stage that requires substantial investment; the negative financial expenses of zhangzhou pientzehuang pharmaceutical also indicate that the company primarily holds cash in its account, most of which has been invested in banks' wealth management products to earn interest.

However, for zhangzhou pientzehuang pharmaceutical shareholders, the holding experience may not be very pleasant.

Observing past data shows that before 2022, zhangzhou pientzehuang pharmaceutical's dividend payout ratio remained around 30%; only in 2023 did it rise to about 50%, and since its listing, the average dividend payout ratio has only been 35.36%.

In comparison, yunnan baiyao group's dividend payout ratio has been around 80% in recent years, with an average payout ratio of 56.41% since its listing. On the other hand, kweichow moutai has seen its dividend payout ratio increase from approximately 50% over many years to over 80% in the recent two years.

Currently, zhangzhou pientzehuang pharmaceutical's operations do not have significant expenses, and the investment in new projects is also not high; a 50% dividend rate is not considered particularly high.

Moreover, for many years, zhangzhou pientzehuang pharmaceutical's dividend yield has been relatively low, only around 1%, and since 2015, it has even been below 1% most of the time; although the dividend yield has increased alongside a continuous drop in stock prices, it remains relatively low.

However, in recent years, the shareholder holdings of zhangzhou pientzehuang pharmaceutical have remained relatively stable.

This is because, within the equity structure, zhangzhou pientzehuang pharmaceutical's equity structure is almost identical to that of kweichow moutai; jiuliang group co., ltd. in zhangzhou directly and indirectly controls 54.78% of the company's shares, making the actual controller of zhangzhou pientzehuang pharmaceutical the zhangzhou state-owned assets supervision and administration commission, which holds 90% of jiuliang group's shares.

In August 2023, the chairman of zhangzhou pientzehuang pharmaceutical was replaced by Lin Zhihui, who had worked for three years in the zhangzhou discipline inspection commission, which is also very similar to kweichow moutai.

In fact, from the perspective of business model, zhangzhou pientzehuang pharmaceutical, which possesses monopoly power, high gross margin, strong consumer demand, and scarcity, is undoubtedly known as the 'moutai of medicine.'

However, compared to moutai, zhangzhou pientzehuang pharmaceutical faces more controversies.

This is because, despite moutai having continuously reduced prices in recent years, the significant price difference between moutai's factory price and market price indicates that moutai is still in a state of supply shortage.

After 21 years of frenzied speculation, the price of second-hand Zhangzhou Pientzehuang Pharmaceutical has now fallen below the guide price, indicating its recognition among consumers is gradually declining.

This is certainly influenced by the broader environment; after all, prior to this, Zhangzhou Pientzehuang was endowed with certain social and consumer attributes, but with the wave of consumption downgrade arriving, users have adjusted their psychological expectations, and the consumer attributes of Zhangzhou Pientzehuang were the first to peel away, leading to a continuous decline in price.

At the same time, the home base of Zhangzhou Pientzehuang in East China has also been lost.

In previous years, East China consistently accounted for more than 60% of Zhangzhou Pientzehuang's overall revenue, but since this year, revenues have continued to grow in single digits, which is also an important factor in the slowdown of Zhangzhou Pientzehuang's performance.

Facing a slowdown in core business growth and limited growth in side businesses, Zhangzhou Pientzehuang may still have to go through a difficult period.

03

Conclusion

In recent years, compared to the overall pharmaceutical sector, which has been depressed under the wave of centralized procurement, Chinese patent medicine, due to being less involved in centralized procurement, has still maintained a relatively high gross margin.

As a leading company in traditional chinese medicine, zhangzhou pientzehuang pharmaceutical maintains an almost perfect business model, consistently holding a super high valuation, far exceeding the entire traditional chinese medicine industry. However, in the past two years, zhangzhou pientzehuang pharmaceutical has not escaped the larger environment, and its valuation has declined.

The latest dynamic PE for zhangzhou pientzehuang pharmaceutical is 48 times. Although this valuation has dropped significantly from historical highs and is approaching the levels seen at the beginning of the stock market crash in early 2016, it is still relatively high compared to the entire traditional chinese medicine industry. In comparison, beijing tongrentang has a PE of 34, while yunnan baiyao group only has a PE of 24. Meanwhile, zhangzhou pientzehuang pharmaceutical is often benchmarked against the cross-industry symbol—kweichow moutai, which also has a dynamic PE of only 23.

From the perspective of capital providers, the attractiveness of a company like zhangzhou pientzehuang pharmaceutical mainly comes from two aspects: one is that its valuation is underestimated, meaning it is very cheap, with a certain expectation of future valuation recovery; the other is that it does a lot in terms of returning to investors, such as being very active in buybacks and generous in dividends.

However, in both aspects, zhangzhou pientzehuang pharmaceutical does not have particularly outstanding performance.

In the long term, zhangzhou pientzehuang pharmaceutical's fundamentals will not waver; however, at present, facing changes in the larger environment and not yet finding a new growth direction, zhangzhou pientzehuang pharmaceutical must win the favor of capital either by waiting for the overall stock market to recover, leading to a return to valuation expansion, or by the management demonstrating more 'sincerity' in breaking through growth bottlenecks and returning to investors. (End of article)