The end of nucleic acid: it is time to reassess the value of nucleic acid enterprises

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Text | Juchao WAVE, Author | Lao Yuer, Editor | Yang Xuran

Since August, stocks of new crown detection concepts have fallen continuously, which is not unrelated to a notice.

On July 29, the Comprehensive Team of the Joint Prevention and Control Mechanism of the New Coronavirus Pneumonia Epidemic of the State Council issued the “Notice on Further Promoting the National Mutual Recognition of New Coronavirus Nucleic Acid Test Results”, which requires:

Nucleic acid test results displayed in different channels have the same validity. All localities should recognize it during the inspection, and it is strictly prohibited to refuse to pass on the grounds that the local health code cannot be inquired, or that the nucleic acid test has not been carried out locally, to refuse the public to enter public places and take public transportation, and to ask the public to repeat the nucleic acid test.

The key point is the last sentence, the masses must not be required to repeat nucleic acid testing.

According to the judgment of relevant people in the capital market, this has made “the nucleic acid testing industry that is gradually becoming less prosperous” worse.

Many investors may not believe this argument, after all, the previous performance of nucleic acid-related companies was really good.

With China’s huge population base, the nucleic acid of the whole city, which is calculated in millions at every turn, is behind the expenditure of hundreds of millions and billions of calculations:

In May 2020, due to the epidemic in Wuhan, about 9.9 million nucleic acid tests were completed in the city;

In January 2021, Shijiazhuang epidemic, the number of people in the first round of nucleic acid testing alone exceeded 10 million;

In May 2022, there was an epidemic in Shanghai, and nucleic acid tests exceeded 57 million in the first six days of the month.

On April 16, 2022, Li Jinming, deputy director of clinical testing at the National Health Commission, said: “Since the outbreak of the new crown epidemic, China has completed about 11.5 billion nucleic acid tests.”

Stimulated by the huge market demand brought about by the epidemic, many testing companies have “demolition-style growth”.

But no industry will develop in a way that hollows out social wealth, and nucleic acid testing is no exception. As soon as the policy winds turn monotonously, the business logic of the industry begins to collapse rapidly.

01 Nucleic acid “upstarts”

After getting rich, a season is not as good as a season.

In 2019, an A-share listed company called Daan Gene suffered three consecutive years of declines in revenue and non-net profit.

This year, Daan Gene ‘s operating income was only 1.098 billion yuan, a year-on-year decrease of 25.73%, and the deducted non-net profit was only 12 million yuan, a year-on-year decrease of 74.73%. This biopharmaceutical company that “integrates the research and development, production and sales of clinical test kits and instruments, as well as the clinical testing services of national chain medical independent laboratories” has encountered the largest performance crisis since its listing in 2004.

A similar dilemma also happened to Zhijiang creatures . In 2019, the net profit of Zhijiang Bio , one of the leading domestic manufacturers of molecular diagnostic reagents, was only 51.52 million, which was nearly 20% lower than the data in 2018.

At that time, Shengxiang Bio was only a company with a net profit of less than 40 million.

All changes are in 2020. This year, after the outbreak of the new crown epidemic, six new crown virus detection products of six companies were approved for emergency launch. Zhijiang Bio , Shengxiang Bio , and Daan Gene are among them.

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The rigid demand of new crown detection reagents has pushed up corporate profits

By 2020, Daan Gene ‘s revenue will reach 5.341 billion, and before that, Daan Gene ‘s highest annual revenue was only 1.612 billion. In 2021, Daan Gene ‘s revenue is 7.664 billion; in the first quarter of 2022, its revenue has reached 3.362 billion.

Overall, Daan Gene ‘s revenue since 2020 has exceeded the total revenue of the past 10 years, and its net profit has exceeded the total since its listing; Zhijiang Bio ‘s operating revenue in 2020 has increased by 692.72% year-on-year, attributable to The net profit of shareholders of listed companies increased by 1708.96% year-on-year; Shengxiang Bio ’s revenue increased by 12 times in 2020, and the net profit attributable to the parent increased by 65 times. Among them, the company created a net profit of 2 billion yuan for nucleic acid reagents alone.

Under the catalysis of the epidemic, in addition to the manufacturers of new crown testing products, there are also many upstream raw material manufacturers and downstream testing manufacturers. This originally inconspicuous industrial chain has suddenly expanded, and one after another “myths of making wealth” have emerged.

It feels like some families who were not very wealthy before suddenly caught up with the demolition and became rich overnight.

But getting rich is not always sustainable. The performance of many companies is showing that the epidemic dividend is gradually fading.

Shengxiang Bio’s 2021 annual report shows that the company’s annual operating income fell by 5.22% year-on-year, and its net profit fell by 14.29% year-on-year.

Zhijiang Bio’s revenue in 2021 will drop by 1.62%, and its net profit will drop by 18.61%. In the first quarter of 2022, although revenue rose by more than 20% year-on-year, net profit fell again by 12.9%.

Daan Gene is in a better situation, and its performance in 2021 will not grow negatively, but the growth rate of revenue has dropped from 386.35% in 2020 to 43.49%, and the growth rate of net profit has dropped from 2556.8% in 2020 to 47.74%.

Even so, among the nucleic acid testing concept companies, the performance of these three companies is already outstanding. Many other companies even saw a cliff-like decline:

On July 14, 2022, Kehua Bio released the semi-annual report performance forecast. It is expected that the net profit in the first half of 2022 will be 35 million to 50 million, a year-on-year decrease may exceed 90%;

On the same day, Lepu Medical also released its semi-annual performance forecast for 2022. It is expected that the revenue of the new crown testing-related business will decrease by 80% year-on-year, and the proportion of total revenue will drop from 37% last year to 9%;

Huada Gene’s 2022 semi-annual performance forecast stated that the company’s net profit fell by 33.7% to 46.6% year-on-year, mainly due to the decline in business income related to the new crown compared with the higher base in the same period in 2021.

02 Policy to “bargain the price”

A glimpse or two can be seen from the decline in the return on equity of various companies.

The unavoidable fact is that the new crown nucleic acid detection is an “emerging industry” developed by government departments, which determines that the biggest variable in this industry is policy fluctuations.

The most deadly thing for enterprises is the government’s own “bargaining”.

In the face of the decline in performance growth in the first quarter of 2022, Shengxiang Bio explained that it was mainly affected by factors such as the centralized procurement of domestic new crown virus detection reagents and the general reduction in the prices of new crown related products.

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There is only one real “buyer” of nucleic acid detection reagents

Zhijiang Bio also explained in its 2021 financial report that the decline in performance is mainly due to the full recovery of the production capacity of manufacturers and raw material suppliers in 2021, resulting in sufficient supply of new crown testing products and fierce industry competition. The implementation of price-reduced centralized procurement has prompted a substantial reduction in the price of nucleic acid detection kits.

Both mentioned centralized procurement, which is the ultimate weapon for policy bargaining :

In April 2020, Hubei took the lead in launching the centralized procurement of new coronavirus detection kits, with the lowest winning bid price of 16.78 yuan and the highest of 24.99 yuan.

On June 15, 2020, Beijing announced the “Transaction Results of the Joint Purchase of Beijing-Tianjin-Hebei New Crown Virus Related Detection Reagents”, showing that 11 nucleic acid detection reagent products were sold online, with a minimum price of 12 yuan.

By September 7, 2021, the Beijing-Tianjin-Hebei-Lu alliance will collect 22 kinds of nucleic acid detection kits, and the lowest supply price has been as low as 5.38 yuan.

Judging from the price of nucleic acid testing, during the epidemic in Wuhan, the price of a single test for a single person was 200 yuan. By April 25, 2022, when Beijing residents conduct large-scale nucleic acid testing, the price of a single test for a single person has been reduced to 28 yuan per person; the multi-person mixed test will be reduced to no more than 8 yuan per person.

From June 1, 2022, the price of nucleic acid single-sample testing conducted by public medical institutions in Shanghai will be reduced from 25 yuan to 16 yuan, and the price of multi-sample mixed testing will be reduced from 5 yuan to 3.5 yuan per person.

The director of the Guangdong Provincial Medical Security Bureau said in the Guangdong Provincial People’s Government’s report on the basic medical security work that Guangdong Province has lowered the price of nucleic acid testing for the new coronavirus seven times. The price of large-scale mixed inspection organized by the government does not exceed 3 yuan.

At present, the cost of nucleic acid detection-related products has been pressed to the limit, and it has completely entered the stage of small profits but quick turnover.

This can be seen from the decline in the return on equity of various companies:

In 2020, Shengxiang Bio ‘s return on net assets is as high as 107.29%. In 2021, this figure will rapidly shrink to 39.02%. In the first quarter of 2022, it will continue to rapidly decline to 9.77%, which is almost the same as the level before the epidemic;

The three figures of Daan Gene are 80.21%, 63.07% and 20.51% respectively;

The three figures of Zhijiang Bio are 91.62%, 22.13% and 6.95% respectively, which are already lower than the levels before the epidemic.

Whether it is the national mutual recognition of nucleic acid test results promoted this time, or the previous itinerary card picking stars, and the coverage time range of the itinerary card query results has been adjusted from “14 days” to “7 days”. More and more easing policies are showing that epidemic prevention and control is seeking more compatibility with normal work and life, and some “excessive prevention and control” measures will gradually disappear.

The gradual loosening of the scale directly brings about the slowdown in the growth rate of nucleic acid testing demand.

According to the report of the China Business Industry Research Institute, from 2018 to 2021, the market size of China’s nucleic acid testing will be 9 billion, 10.6 billion, 12.1 billion and 13.2 billion respectively. Judging from the growth rate, the growth amount in 2021 has declined compared with the previous two years, and the growth rate has also been declining.

After the profit of the entire interest chain was diluted, many problems came one after another. Some companies even choose to take risks.

On May 29, Beijing announced the illegal multi-tube mixed inspection of Zhongtong Lamboo Medical Laboratory. Because of its suspected illegal crimes, the Beijing police have now filed a case against “Zhongtong Lanbo” for investigation.

Adicon has been repeatedly complained by users on multiple social platforms due to issues such as the slow issuance of test reports. As one of the four major ICL service providers, KingMed Medical has faced scandals such as detection accuracy in the Henan market in early 2022.

It can be seen that in the case of lower profits, the pressure on related companies is huge.

What followed was pressure on the market value.

03 “Crazy” mouth is no longer

The brilliance of nucleic acid is like fireworks.

Market capitalization is defined as the sum of future profits of a business.

This means that the amount of profits earned today and in the past few years has a very limited role in determining the market value of nucleic acid companies. In the eyes of investors, even if the concept stocks related to nucleic acid testing make a lot of money, their long-term value will not be recognized.

Therefore, almost all listed companies related to nucleic acid testing are now valued by the market at a very low price-earnings ratio: Daan Gene is about 3.6 times, Shengxiang Bio is 6.5 times, Zhijiang Bio is less than 9 times, and Jiu’an Medical is even more. A price-to-earnings ratio of less than 1 is set, which is extremely rare and generally only occurs in companies that are about to go bankrupt.

The stock price faithfully reflects investors’ expectations for the future profitability of the nucleic acid “business”. After the “crazy mouth”, everything was beaten back to its original shape.

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Zhijiang Bio stock price performance (listed to date)

After the listing of Shengxiang Bio , the stock price once exceeded 100 yuan, but now it is less than one-third of the original price. After the listing of Zhijiang Bio , the market value has fallen back to less than 10 billion yuan. BGI has already made all the stock price increases since the new crown epidemic. finished falling.

After there is no longer hope for the nucleic acid business, there is a theory in the market that the epidemic dividend has accumulated a large amount of cash flow for nucleic acid testing companies, which can help companies open up new tracks.

But from the actual situation, the wealth comes a little suddenly, and many companies may not really be ready to take advantage of this once-in-a-lifetime wealth.

Judging from the R&D investment cost that most reflects the determination of scientific research, after Daan Gene ‘s net profit in 2020 increased by 2556.8%, the proportion of R&D investment dropped from 8.64% to 3.12%; in 2020, BGI’s revenue increased by 199.86%, and profits An increase of 656%, but the R&D investment ratio has dropped from 11.33% to 7.38%; Shengxiang Bio has increased its revenue by 12 times and its net profit by 65 times year-on-year. The proportion of R&D investment has plummeted from 10.66% to 1.74 %. In 2021, although Shengxiang Bio has increased its research and development expenses by 126.53%, its revenue ratio will only be 4.15%, which is far less than before the epidemic.

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Share price performance of Shengxiang Biotechnology (listed to date)

At present, many companies in this industry are still enjoying the dividends of the epidemic. They have not sought industrial upgrading because of the wealth brought by nucleic acid, nor have they shown real growth. After buying and selling, it quickly returned to ordinary, and there was no outbreak again, nor did it precipitate a sufficiently excellent enterprise.

The brilliance of nucleic acid is like fireworks, instantly gorgeous, but once you turn your head down, you will run wild.

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