The end and beginning of an era.

“Investor Network” Cai Jun

A new era for Conn Bay (600572.SH, the “Company”) has arrived.

In December, the company announced that its drug amikacin sulfate injection passed the consistent evaluation of the quality and efficacy of generic drugs. Pharmaceutical Genken is a Japanese manufacturer with sales of 0.458 billion yuan in the domestic terminal market in 2023, and the company has invested about 6.9 million yuan in research and development expenses to carry out a consistency evaluation.

Earlier, the company announced the election of Jiang Yi as the new chairman. Jiang Yi had worked on a platform under the Zhejiang Provincial State-owned Assets Administration Commission, and former chairman Hu Jiqiang was the honorary chairman.

The retreat of spiritual figures heralds the end of an era. In fact, the divestment and injection of related assets has been ongoing since the state-owned capital joined the company, and even some senior management have achieved “freedom of wealth.”

The spiritual figure retreats

Quietly, Conn Bay passed through an era. From leading the team to retiring, the company has gone through many tests.

In August, the company announced that due to the expiration of the term of the 10th board of directors, Hu Jiqiang will no longer serve as director and chairman from the date the new term was formed, but has been appointed as an honorary chairman. At the same time, the company summed up its personal contributions over 40 years of work.

In 1982, Hu Jiqiang graduated from Zhejiang Medical University (now Zhejiang University) and joined the company's predecessor, Lanxi Yunshan Pharmaceutical Factory, where he served as the factory director and chairman all the way. The company has also grown from a small street factory to a listed company. Its core products include enteritis tablets, “Zhishinjiao” musk macaroni drops, and “Golden Flute” compound houttuynia cordata.

“If everything in the world is easy to obtain, then it is easy to lose it.” Hu Jiqiang highly praised Wang Yangming. This statement is also one of the classics of Confucian masters. The gains and losses of business take time to refine, but the losses seem to be in the blink of an eye. From 2009 to 2019, the company successively merged and acquired many companies. The racetrack covered e-commerce, eyewear, pharmaceutical companies, etc., but the darkest hour followed.

In 2019, due to declining revenue and impairment of goodwill, the company experienced its first loss since listing during the reporting period. In order to mitigate the crisis, the following year, Hu Jiqiang and management transferred 20% of the company's shares to a platform under the Zhejiang Provincial State-owned Assets Administration Commission. After completing the mixed reform, the company's actual controller also changed positions to state-owned assets, but Hu Jiqiang remained the chairman of the board.

During the difficult years, Conn Bay successively divested and depreciated its assets, and established a division management model, and its performance gradually broke out of its trough. But that doesn't mean that the time has come for the company to shine brightly.

In the first three quarters of this year, the company's revenue and net profit attributable to shareholders of listed companies were 4.913 billion yuan and 0.518 billion yuan respectively, down 5.23% and 16.81% year-on-year respectively. The company explained that the decline in performance was due to a surge in market demand for digestive system drugs in 2023.

At the same time, the goodwill issues that almost crushed the company still have a “tail”. As of the third quarter of this year, the company's goodwill balance was 0.185 billion yuan, the original carrying value of the 8 acquisitions was 0.93 billion yuan, and a total impairment of 0.75 billion yuan was prepared for 3 of them.

Some senior executives have “financial freedom”

Hu Jiqiang retreated, and some senior officials who initially fought side by side achieved “freedom of wealth” one after another after the mixed reform.

In July, the company acquired 20.16% of Kangenbei Traditional Chinese Medicine's shares at a price of 0.31 billion yuan. The transferors were Xu Jianhong and Jiyi Partnership, with consideration amounts of 12.2661 million yuan and 0.294 billion yuan respectively. Among them, Xu Jianhong served as the company's vice president before the state-owned company joined the company, and later became the general manager of the non-prescription drug division; Jiyi Partnership is the target employee shareholding platform, and the partner with the largest shareholding is Xu Jianhong, with a ratio of 47.6%.

It should be pointed out that the business division is the management model implemented by the company in 2020, with a total of six divisions. Up to now, the OTC Division includes 4 main companies. Kangenbei Traditional Chinese Medicine is a production type, and the core product is the “Golden Flute” compound houttuynia cordata mixture.

In other words, the former vice president became the general manager of the division, and now he has transferred shares in the subsidiary. However, the company stated in the announcement that this transaction is not a related transaction.

In terms of valuation, the value-added rates of Kangenbei Traditional Chinese Medicine are 18.49% and 79.64%, respectively. The difference is that the latter includes the value of intangible assets such as brands, channels, and marketing networks. In the end, the company chose the income method with a higher valuation. The total equity assessment value was 1.821 billion yuan, corresponding to the 20.16% shares acquired, and a transaction amount of 0.31 billion yuan was determined through negotiations.

In terms of performance, from 2021 to the first three quarters of this year, Kangenbei Traditional Chinese Medicine's revenue was 1.45 billion yuan, 1.58 billion yuan, 1.81 billion yuan, and 0.392 billion yuan, respectively, and net profit to mother was 0.267 billion yuan, 0.214 billion yuan, 0.227 billion yuan, and 0.031 billion yuan, respectively.

At the same time, the transaction has a profit compensation arrangement. In 2024 to 2026, the deducted non-net profit of Kangenbei Traditional Chinese Medicine must achieve 0.187 billion yuan, 0.203 billion yuan, and 0.216 billion yuan. If not completed, Xu Jianhong and Jiyi Partnership should pay corresponding profit compensation to the company.

In fact, Conn Bay's premium acquisition of assets held by the division has been operated many times. In 2023, the company acquired shares in Nexus Pharmaceuticals and Kangenbei Health Technology for 0.183 billion yuan and 0.035 billion yuan respectively. The value-added rates were 115.49% and 98.84%, respectively. The reason for the transaction was to enrich the integrated chemicals and health consumer products divisions.

In the same way, after the transferor's shares were penetrated, the target senior management and general manager of the business department were included. Among them, Hu Bei, one of the transferors of Kangenbei Health Technology, formed a father-son relationship with Hu Jiqiang and served as the company's director and general manager of the consumer health products division. During the acquisition process, the company acquired 12.33% of Hubei's direct shares at a price of 35.2737 million yuan.

Still planning to buy 1-2 companies

Had it not been for the actual change of control, Hu Bei would have appeared in the public eye more times. In fact, Hu Bei is still the chairman of Zhanshiming Company. Conn Bay's past with Zhen Zhiming is another interesting past.

In 2015 and 2018, the company successfully obtained a controlling interest in Cherished Ming through two acquisitions. In 2021, in accordance with the requirements of the new controlling shareholders, the company transferred 42% of the shares. The following year, the latter was no longer included in the consolidated financial statements.

In fact, Jinshiming has always been Conn Bay's “cash cow.” In 2021, the company achieved sales revenue of 0.724 billion yuan, a year-on-year increase of 41.38%, second only to the Enteric Pain Relief series. After the divestment, in 2022, the company acquired controlling interests in Zhejiang Aotuokang Pharmaceutical and Zhejiang University of Traditional Chinese Medicine Tablet Company, and subscribed to Intel Group with a fixed increase of 0.4 billion yuan. The Intel Group specializes in the wholesale and retail sale of pharmaceuticals and devices. It is a related transaction because it is the same controlling party as the company.

Successive divestments and acquisitions are all new arrangements for state-owned holding parties, and capital operations are continuing to advance. Earlier, the company revealed plans to acquire 1-2 listed pharmaceutical companies or long-established traditional Chinese medicine companies.

At the November performance briefing, the company disclosed that it had carried out some merger and acquisition project work, but due to various reasons, it was impossible to achieve it, and it did not meet the level of information disclosure requirements of listed companies. Currently, the company is also in the process of negotiating relevant targets, and has also launched an internal brand awareness program. It will focus on developing products in the categories of supplements for middle-aged and elderly people, cardiovascular, lower back and lower back, and bruises around the “Baozhilin” trademark. (Produced by Thinking Finance) ■