Source | Bohu Finance (bohuFN)
Author | Chen Pingan
At the beginning of the year, Yunnan Baiyao caused heated discussions due to a loss of nearly 2 billion yuan in stock speculation. As a recognized white horse stock, although in the subsequent performance briefing meeting, Qian Yinghui, Secretary of the Board of Directors of Yunnan Baiyao, responded to the company’s stock speculation losses, saying that he would strictly control the investment scale in the secondary market, gradually reduce positions, and no longer continue to increase holdings, but since this year The performance of Yunnan Baiyao is still difficult to convince investors.
According to the financial report for the third quarter, Yunnan Baiyao’s revenue in the first three quarters of 2022 was 26.915 billion yuan, a year-on-year decrease of 5.1%; the net profit attributable to the parent was 2.304 billion yuan, a year-on-year decrease of 5.94%. The share price of Yunnan Baiyao also fell from a high of 112 yuan per share to 55.8 yuan per share.
As one of the few pharmaceutical companies with state-level secret formulas, Yunnan Baiyao has successfully taken the top spot in the Chinese medicine industry by virtue of its drug distribution and diversified layout in the past few decades.
But in recent years, the white horse stock Yunnan Baiyao has also fallen into a “middle-aged crisis.”
From traditional Chinese medicine to general health
From the perspective of its birth, Yunnan Baiyao has a history of 120 years.
In 1902, Qu Huanzhang, a famous doctor of the Yi nationality, combined folk medicine and the experience of caravans to develop “Baibao Dan”, which was specially used for bruises and other symptoms. This was undoubtedly a strategic medical resource under the background of the war at that time.
After the founding of the People’s Republic of China, Qu Huanzhang’s widow Miao Lanying decided to donate the secret recipe of Baibaodan to the government. Kunming Pharmaceutical Factory accepted the Baibaodan donated by Miao Lanying and renamed it “Yunnan Baiyao”. The formula of Yunnan Baiyao is also listed as “national top secret” by the state, and the confidentiality period is permanent. Only Yunnan Baiyao and Pien Tze Huang have such an honor in the country.
After the reform and opening up, with the opening of policies and the scale of production, Yunnan Baiyao gradually developed and expanded, and was listed on the Shenzhen Stock Exchange in 1993.
But along with the opportunities come challenges. Due to the influx of a large number of foreign products into the Chinese market, Yunnan Baiyao encountered an unprecedented crisis. The sales volume of Yunnan Baiyao Powder, once a leading product, has dropped from tens of millions of bottles at its peak to several million bottles.
The newly appointed general manager Wang Minghui decided to reform. On the one hand, it is the product. For Yunnan Baiyao, compared with foreign brands, its own brand reputation of Baiyao is the biggest advantage. So at that time, Yunnan Baiyao established the strategy of “stabilizing the central government and strengthening the two wings”, that is, to diversify and enrich the product line while stabilizing the Baiyao series of pharmaceuticals.
(Source: Network)
The most typical case is Yunnan Baiyao toothpaste. At that time, the competition in the domestic toothpaste market was fierce. Not only were there many domestic brands, but overseas crests also entered the competition. However, Yunnan Baiyao is ingenious. With the help of Baiyao’s brand building over the past decades, it launched Yunnan Baiyao toothpaste, which focuses on preventing gum bleeding, and directly positioned it at a high-end price.
Jobs once said that consumer needs are created. The strategy of covering toothpaste products with the concept of “medicine” has achieved great success. Yunnan Baiyao has become a phenomenon and product, and quickly stands out from a certain player, ranking first in the market. In 2022, Yunnan Baiyao will report It shows that the market share of toothpaste products has reached 24.8%.
Another aspect is sales. After joining Yunnan Baiyao, Wang Minghui introduced the final elimination system of General Electric of the United States, which greatly improved the combat effectiveness of the sales team. In terms of channels, in response to the particularity of Yunnan Baiyao toothpaste, Wang Minghui innovatively adopted the “pharmacy + supermarket” model, which boosted the sales of toothpaste products.
In 2010, Yunnan Baiyao’s revenue exceeded 10 billion, and the previous “stabilizing the central government, breaking through the two wings” was upgraded to “new Baiyao, great health”, and gradually formed four major brands of pharmaceuticals, daily chemical products, traditional Chinese medicine resources and pharmaceutical business. The business structure of the sector.
Since 2000, Yunnan Baiyao has switched to the fast lane in the following 13 years. The average annual compound growth rate of revenue has reached 26%, and the profit growth rate has reached 35%.
Through reform and diversification, Yunnan Baiyao has completed the transformation from a single pharmaceutical company to a large health company.
The Two Sides of Transformation
Although they are both “national top secret”, Yunnan Baiyao and Pien Tze Huang have the same fate but different fates. On the one hand, under the current environment, the demand for Yunnan Baiyao, which mainly treats bruises, is too stable. Pien Tze Huang, which focuses on relieving liver pressure, meets the needs of the public with increasing living standards.
On the other hand, Pien Tze Huang’s “unique” status in liver relief has provided it with room to increase its price. Last year, its price was even fired to a price of 1,000 yuan. However, there is no such price increase logic in Yunnan Baiyao.
Therefore, Yunnan Baiyao does not appear to be so active in the development of new products. At a time when the research and development of domestic biological drugs and anticancer drugs is surging and many traditional Chinese patent medicine companies are undergoing transformation, Yunnan Baiyao is more focused on the secondary development of the original products. From 2019 to the first half of 2022, the R&D utilization rates of Yunnan Baiyao will be 0.59%, 0.55%, 0.91% and 0.72% respectively. The proportion of the pharmaceutical sector, which used to be the main force, in total revenue has also dropped to about 15%.
Due to the characteristics of Yunnan Baiyao itself as a state-owned enterprise, the pharmaceutical business sector, which accounts for the majority of revenue all year round, has a large volume of pharmaceutical distribution business with low gross profit, but it cannot be said to make money.
In the Chinese herbal medicine segment, Yunnan Baiyao mainly produces and sells the Chinese herbal medicine Panax notoginseng. Although it belongs to the high-end group, it is greatly affected by the price of Panax notoginseng, and it is difficult to become the main revenue force.
Of course, making money depends on the personal care-based health product division, among which toothpaste products bear the burden of profitability. As of the first half of this year, Yunnan Baiyao toothpaste has occupied the first place in the market for four consecutive years, reaching 24.8%. As a star product, in the first half of this year, the net profit of Yunnan Baiyao toothpaste accounted for 88.13% of the total net profit of the group’s revenue.
But the problem is that toothpaste is only a market segment with a limited market ceiling. The data shows that the scale of my country’s toothpaste market will increase from 21.1 billion in 2014 to 30.8 billion in 2020, with a compound annual growth rate of 6.51%.
Since 2017, the sales growth of Yunnan Baiyao toothpaste has begun to slow down. In 2011, its sales growth rate was as high as 45.34%, but by 2021, the growth rate was only 9.7%.
Through diversified transformation, Yunnan Baiyao has lost the development direction of the main pharmaceutical business while finding new growth in the big health. As the growth of toothpaste sales slowed down, Yunnan Baiyao gradually fell into the dilemma of weak growth.
Find a new growth curve
Yunnan Baiyao may not be unaware of the current situation. Last year, the reason why Yunnan Baiyao fell sharply in stocks was precisely because they had tasted the sweetness before.
In 2016, in order to break through the growth dilemma, Yunnan Baiyao launched the mixed reform of state-owned enterprises. A year later, Yunnan Baiyao introduced the private enterprise Xinhuadu, and the actual controller of Xinhuadu was Chen Fashu, known as “Chen Feite”.
In 2020, A-shares will usher in big bulls. Several stocks Chen Fashu invested in, Xiaomi Group, Yili, Kweichow Moutai, and Hengrui Medicine have all achieved varying degrees of rise. As shown in the financial report, in 2020, Yunnan Baiyao’s net profit will reach 5.516 billion yuan, a year-on-year increase of 31.85%, which also brings the share price of Yunnan Baiyao to a high of 112 yuan.
But in fact, nearly half of the net profit of 5.516 billion yuan came from investment income from buying stocks. This also paved the way for a huge loss in stocks in 2021.
In the past few years, Yunnan Baiyao has indeed been focusing on cultivating new growth points.
At present, Yunnan Baiyao is implementing a 1+4+1 strategy, in which the first 1 refers to the field of traditional Chinese medicine, and 4 refers to the 4 areas they focus on, namely the oral cavity, skin, and bone injuries. and women’s care. The second 1 refers to digital technology.
In the field of orthopedics, Yunnan Baiyao has acquired companies with equipment and materials in orthopedics; in the field of skin, it has established a light medical beauty chain; it has also created a number of new daily chemical brands, such as Yangyuanqing, which promotes hair growth and prevents hair loss.
(Source: Network)
But for pharmaceutical companies, research and development is always the foundation of their lives. How to make more breakthroughs in the main business of medicine and build a corporate moat through research and development is a more worthy choice than investment and daily chemicals.
Reference source:
1. City boundary: How did Yunnan Baiyao lose its position as the No. 1 Chinese medicine?
2. Alpha Factory: Yunnan Baiyao, the “middle-aged crisis” of a white horse stock
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