Author | Mubo
Process editing | Xiaobai
new pneumonia epidemic is in the land of Jiuzhou, and people from all walks of life support the fight against the epidemic.
The Wuhan Red Cross Society has also received a large amount of donations from all over the country and even overseas. As of January 31, the Wuhan Charity Federation and the Wuhan Red Cross Society have received a total of about 3.195 billion yuan in donations and a large amount of epidemic prevention materials.
However, the operational efficiency of the Wuhan Red Cross Society's inventory and distribution work is questioned: Doctors from Wuhan Union Hospital reported that they could not get N95 masks, a man drove a public car to pick up masks from the Wuhan Red Cross Warehouse, and CCTV reporters visited the Wuhan Red Cross Warehouse and conducted live video broadcasts, but were blocked by security guards and the live broadcast was forced to be interrupted...
On February 2, Jiuzhoutong (600998.SH) was ordered to assist the Wuhan Red Cross Society. Jiuzhoutong said that 30 people work in shifts, and the evening shift staff will make a record at 24 o'clock every day. Emergency materials can be completed in two hours from entering the warehouse to shipment.
Jiuzhoutong was established in March 1999 and is headquartered in Wuhan City, Hubei Province. It was listed on the A-share market in 2010. It is the largest private enterprise in the field of pharmaceutical distribution in the country.
As the saying goes, professionals do professional things.
1. The largest private pharmaceutical distribution enterprise in the country
The top four listed companies in the pharmaceutical distribution industry are Sinopharm Holdings (1099.HK), China Resources Pharmaceutical (3320.HK), Shanghai Pharmaceutical (601607.SH), and Jiuzhoutong (600998.SH), among which Jiuzhoutong is the only private enterprise.
(Data source: wind)
In terms of average growth rate, Jiuzhoutong's revenue growth rate was the fastest from 2015 to 2018, but it still has a big gap with the top three in absolute value.
2
Jiuzhoutong's equity structure in 2018 shows that Liu Baolin indirectly has 50.99% of the voting rights and is in absolute control.
(Stock structure data source: 2018 annual report)
As a private enterprise, Jiuzhoutong may have the advantages of flexible system, incentive mechanism, and efficient decision-making. In 2014 and 2017, Jiuzhoutong implemented two three-year equity incentive plans:
In August 2014, the number of shares in incentives was approximately 37.42 million shares, accounting for 2.32% of the total share capital, covering more than 1,592 managers and business backbones, the exercise price was 8.15 yuan per share, and the exercise conditions were net profits in 2014, 2015 and 2016. Run increased by no less than 15% year-on-year;
in April 2017, the number of shares in incentives was approximately 54.34 million shares, accounting for 3.3% of the total share capital, covering 2,683 managers and business backbones, the exercise price was 9.98 yuan per share, and the exercise conditions were no less than 20%, 45% and 75% year-on-year in 2017, 2018 and 2019, respectively.
According to the equity incentive plan in April 2017, the average year-on-year growth of net profit is not less than 20%, compared with the average year-on-year growth of no less than 15% in August 2014, and the exercise conditions are stricter. So has Jiuzhoutong been realized in the actual situation?
Since Jiuzhoutong's listing, the net profit attributable to the parent company shareholders after deducting non-recurring gains and losses (referred to as "net profit attributable to shareholders of non-recurring gains and losses) is basically in a steady growth trend. Excluding the negative growth in 2011 and the high growth in 2016, this phenomenon will be analyzed later and will not be discussed for the time being.
(Net profit attributable to shareholders after deducting non-operating items)
from 2014 to 2018 was 450 million, 577 million, 826 million, 1.01 billion and 1.228 billion, respectively, with year-on-year growth of 22.9%, 28.3%, 43.1%, 22.3%, and 21.6%, respectively. The first equity incentive exercise conditions have been met.
The second equity incentive has expired, but the 2019 annual report has not yet been released.
2018 net profit attributable to shareholders increased by 48.7% year-on-year compared with 2016, which is higher than the increase of the exercise conditions agreed in the equity incentive plan. In the first half of 2019, the net profit attributable to shareholders was 617 million yuan, a year-on-year increase of 25.91%. In the first three quarters, the net profit attributable to shareholders was 862 million yuan, a year-on-year increase of 26.14%.
(Jiuzhoutong's first three quarters performance)
If this growth trend is followed, the net profit attributable to shareholders in 2019 should also be able to meet the pre-ordered exercise conditions in 2017 - a year-on-year increase of 75% compared with 2016.In terms of revenue from
, Jiuzhoutong's operating income has also grown steadily, from 21.252 billion in 2010 to 87.136 billion in 2018. In the first three quarters of 2019, Jiuzhoutong achieved operating income of 73.38 billion yuan, an increase of 15.11% year-on-year, a decline in overall growth rate in 2018, but it still maintained a growth trend.
(Figure: Revenue growth of Jiuzhoutong since its listing)
16, at 24.1%. Fengyunjun believes that the main reason is the dividends of medical reform policies. There were two important medical policies in 2016: VAT reform and the two-vote system.
two-invoice system refers to issuing an invoice from a pharmaceutical factory to a first-level dealer, and the dealer sells it to a hospital and issuing an invoice again. The purpose is to shorten the links of drug circulation, thereby reducing the inflated prices of drugs, and reducing the phenomenon similar to "Zhuangzhou's fish selling". The implementation of the "two-ticket system" pilot program and the "VAT reform" require that pharmaceutical distribution companies not only have direct sales capabilities, but also have the ability to quickly deliver, eliminate irregular and small-scale agents, quickly increase industry concentration, and help increase the market share of leading enterprises.
According to statistics from the Ministry of Commerce, the total sales of four national pharmaceutical distribution companies, Sinopharm Holdings, China Resources Pharmaceuticals, Shanghai Pharmaceuticals and Jiuzhoutong, were 27.96%, 29.17%, 31.58%, 32.01% and 32.14% from 2013 to 2017, respectively.
2. Jiuzhoutong Business Empire: its business is huge, entering the B2C terminal market from B2B, but it is still mainly based on circulation business
From Jiuzhoutong's revenue structure from 2014 to 2018, it can be seen that the revenue of pharmaceutical wholesale and related businesses account for more than 95% of the total revenue, so Jiuzhoutong can basically be regarded as a distribution company.
(Table: Jiuzhoutong's revenue structure from 2014 to 2018)
In addition, Jiuzhoutong has a small number of other businesses: pharmaceutical retail, pharmaceutical industry, value-added services.
Compared with the customers of pharmaceutical wholesale business, the customers of pharmaceutical retail business are distributors, OTC pharmacies, hospitals and other institutions. The customers of pharmaceutical retail business are end individual consumers, mainly referring to Hao Pharmacist online business and offline physical retail pharmacies. Currently, there are 1,287 Hao Pharmacist retail pharmacies, including 251 direct stores and 1,045 franchise stores;
Jiuzhou Tong has its own pharmaceutical production enterprises, covering traditional Chinese medicine, Western medicine and medical devices , Chinese medicine is mainly Chinese herbal medicines, Western medicine mainly includes antibiotic series, diabetes series and cardiovascular series drugs, and medical devices mainly focus on household medical electricity and ordinary consumables;
Jiuzhoutong's medical field logistics information technology is also very strong in the industry, so in addition to using it yourself, it also provides logistics management information systems and related value-added services to the upstream and downstream, such as helping Yunnan Baiyao and Tianshili develop a medical flow information management system and provide a logistics center planning solution.
In 2017, Jiuzhoutong began to propose the development strategy of "FBBC", "F" refers to upstream pharmaceutical factories, the first "B" refers to Jiuzhoutong, the second "B" refers to terminal pharmacies and clinics, and "C" refers to consumers. That is, integrating the group's e-commerce technology team, Jiuzhoutong as a platform to connect B2B, B2C and O2O businesses.
(Source: Great Wall Securities Research Institute)
If you use Alibaba for comparison and understanding, B2B is Alibaba, B2C is Taobao, and O2O is Hema Fresh.
In other words, Jiuzhoutong's ambition is not only in B2B's institutional business, but also trying to enter the terminal market. "Good Pharmacist" is the core platform for Jiuzhoutong to open up B2C and O2O: Good Pharmacist not only provides drug purchase and distribution, but also provides doctor consultation services.
According to Jiuzhoutong's 2018 annual report, the introduction of the Good Pharmacist APP is as follows:
Good Pharmacist APP's "24-hour delivery of medicine, 1-hour delivery" O2O delivery business, creating a national three-dimensional "5 warehouses + 20 cities" drug delivery outlet, and adding 8 cities including Hefei, Xiamen, Ningbo , Suzhou , Hangzhou, Shenzhen, Guangzhou and other 8 cities provide O2O delivery business. Currently, there are 20 first- and second-tier cities including Beijing, Wuhan, Shanghai, etc. Good Pharmacist users can enjoy the professional consultation and home delivery service of Good Pharmacist.
In 2018, the pharmaceutical retail market was not doing well, and revenue only increased by 4.4%.Because Hao Pharmacist's online business adjusts its development strategy, it has changed from the previous pursuit of scale to a strategy focusing on business quality and customer experience.
Pharmaceutical retail business also involves market opportunities for "prescription drug outflow". Prescription drug outflow means that the hospital allows patients to hold prescriptions and buy drugs outside the hospital, which will transfer the drug supply undertaken by the hospital pharmacy to off-hospital markets such as retail pharmacies, primary medical institutions, etc. The background of the outflow of prescription drugs is that the new medical reform puts forward the requirement of separation of medicine, trying to break the hospital's dependence on drugs and reduce the cost of drug use by the people.
In its 2018 annual report, Jiuzhoutong also proposed that the outflow of pharmaceutical e-commerce and pharmaceutical prescriptions has become a future trend. The company's development strategy is to lay out the pharmacy system inside and outside the hospital and undertake prescription orders outflows from secondary hospitals.
However, after Fengyunjun research, it is believed that separation of medicine is a systematic project. Prescription drugs involve cultural inertia and interests of multiple parties. They should still not be effective for a long time. This market can only be won through a protracted war:
Cultural inertia: Western culture has always been a separation of medicine, while Oriental culture has long believed that medicine is not divided. People are used to taking medicine from doctors after prescribing prescriptions. Only after seeing a doctor, they can they really see a doctor after taking medicine.
Local hospitals are concerned about medicine outside the hospital market. If the housing management is poor, fake or inferior drugs will appear. Patients will blame the hospital after taking it; they are worried that doctors and pharmacies will secretly transfer interests, which will harm the hospital brand;
Hospital interests: At present, arrears of drug payments are the norm for hospitals. With billions of drug payments, the interest rate for half a year is tens of millions;
Doctor interests: Some drugs have gray interests, and doctors' income depends on drug rebates;
In terms of practical operation: After the centralized procurement of "4+7" drugs, the hospital's drug prices fell sharply, while OTC pharmacies did not receive policy support and included in the centralized procurement platform, and the price is still much higher than that of the hospital.
Take Japan as an example. In 1956, the government issued the "Pharmaceutical Industry Separation Law", which clearly stipulates that the system of pharmacists are responsible for diagnosis and treatment and the dispensing of medicine is responsible for pharmacists. However, in the next 20 years, prescription outflow was almost motionless.
As of 1974, the rate of outflow was minimal, only 2%.
. Jiuzhoutong business model: price difference and rebate
Therefore, we return to Jiuzhoutong's core business: drug wholesale, of which more than 10,000 upstream suppliers are mainly pharmaceutical product manufacturers, drug wholesalers, and nearly 200,000 downstream customers, mainly including distributors, pharmacies, medical institutions at all levels, etc.
Fengyunjun believes that Jiuzhoutong’s core competitiveness lies in its sales ability. It is precisely because of Jiuzhoutong’s strong sales capabilities that the business model was established: pharmaceutical companies provide sales for agency, and there are price differences and rebates for procurement.
At present, Jiuzhoutong has established a nationwide sales network, with distribution and logistics centers in 31 provincial capitals and more than 100 prefecture-level cities across the country, and has more than 2.3 million square meters of modern medical flow facilities that meet the national GSP standards. It has more than 1,700 delivery vehicles of various types. is the company with the largest medical flow facilities in China.
In 2018, the top five customers of Jiuzhoutong had sales of 1.156 billion yuan, accounting for 1.33% of the total sales. The customer concentration was very low, but the purchase amount of the top five suppliers was 7.93 billion yuan, accounting for 10.25% of the total purchase amount.
Corresponding to this, Jiuzhoutong also has the largest sales staff, accounting for almost half of the sales staff, while the fewest purchasing staff.
But the secret of making money in Jiuzhoutong is on the procurement side. The main sources of profit (gross profit) are two parts:
Current purchase and sales difference: the lower procurement cost obtained by large-scale procurement; the reward rebate after
: After the dealer completes the agreed sales volume or procurement task within a certain period of time, the supplier will give cash, invoice discounts or physical rewards.
reward rebate is very important, contributing almost one-third of the gross profit. For example, the rebate in 2018 was 2.901 billion, which is 38.9% of the gross profit of 7.522 billion. Compared with the entire year, Jiuzhoutong's net profit attributable to shareholders was 1.228 billion.
Supplier's sales reward discount to the company was achieved in the fourth quarter, which also caused Jiuzhoutong's net profit in the fourth quarter to be much higher than other quarters.
(Picture: Jiuzhoutong's net profit attributable to shareholders and net profit attributable to shareholders in 2018)
html at the end of 3, as "other receivables" are reflected in the financial report. Fengyunjun believes that this is the most important asset account of Jiuzhoutong and it is also the financial "secret" that Jiuzhoutong is difficult to discover.
For example, at the end of 2017 and at the end of 2018, Jiuzhoutong’s supplier discounts were 846 million and 1.274 billion respectively.
(Figure: Other receivables of Jiuzhoutong in 2018)
IV. Financial characteristics of circulation business: low gross profit margin, fast inventory turnover, high debt ratio, heavy assets
From this perspective, Jiuzhoutong's business is very similar to JD's self-operated: the characteristics of this circulation business are high income but low gross profit margin, fast inventory turnover and high debt ratio.
(I) Low gross profit margin
Historically, Jiuzhoutong's gross profit margin is very low, but overall it is showing an upward trend, indicating that its bargaining power for the upstream is becoming stronger and stronger.
2
Gross profit margin declined significantly in 2011, from 6.48% in 2010 to 6.05%. This is also why the net profit attributable to shareholders in 2011 decreased by 23.6% year-on-year, which is also the only year-on-year decline in Jiuzhoutong's net profit since its listing.
In addition, revenue growth was the highest in 2016 (24.1%), and gross profit margin was also rising, resulting in a 43.1% year-on-year increase in net profit attributable to shareholders in 2016, which is also the highest since its listing.
(II) Inventory turnover is fast
Jiuzhoutong's inventory turnover rate is around 6, which is equivalent to 6 turnovers a year, which is relatively fast.
accounts receivable/operating income ratio is at a low level in the industry.
However, since the distribution process requires a large number of logistics center warehouses, i.e. fixed assets, the total asset turnover rate is not high, and it is showing a downward trend.
(III) High debt ratio
Jiuzhoutong's debt ratio is very high. Except for the decline after listing A-share financing in 2010, it is basically above 60%, which will have a high financial leverage risk.
Jiuzhoutong's liabilities are mainly short-term loans. As of the latest third-quarter report of 2019, short-term loans were 12.6 billion, other current liabilities (mainly short-term financing bonds) were 3.77 billion, compared with long-term loans, 1.281 billion, and bond payables were 1.419 billion.
This shows that the company is facing greater pressure to repay short-term funds. In theory, long-term funds are more secure than short-term funds and the cost will be lower.
Take the 1-year general short-term financing bond as an example. The interest rate cost issued after 2018 is about 6%.
, and Jiuzhoutong has had relatively few long-term loans since its listing, and it only increased a lot in 2019.
Bonds payable are 1.5 billion convertible bonds issued in January 2016 (Fengyunjun believes that this is the best financing strategy for Jiuzhoutong), with an extremely low face rate of 1.60%, a period of 6 years, and a maturity date of January 15, 2022.
As of the end of 2018, only a very small part was converted into stocks, and the proportion of unconverted stocks was 99.9537%. The adjusted convertible bond price of
is 18.42 yuan per share. Jiuzhoutong's stock price has been lower than this price since 2019. It is expected that the proportion of convertible stocks in 2019 should be very small.
It is also worth mentioning that the proportion of equity pledges of Jiuzhoutong's controlling shareholders is also very high. In October 2018, Chuchang Investment and the equity pledges of joint actors were 83%.
This is also what Fengyunjun is more worried and confused about, why is the controlling shareholder so short of money! ? As a result, Cinda Asset, one of China's four major asset management companies, has been introduced to restructure its debts, resolve debt matters in the form of debt-to-equity conversion, and reduce the proportion of equity pledges.
Cinda Asset Management paid the bond acquisition amount of 1.99 billion yuan and held 100 million shares. However, Fengyunjun doesn't quite understand that the price of this debt-to-equity conversion of 19.9 yuan per share is obviously higher than the stock price in the past two years.
After the debt-to-equity conversion of Xinda Assets was the sixth largest shareholder on November 25, 2019, holding a proportion of 5.33%.
(Shareholder data source: wind)
(IV) Heavy asset investment
Jiuzhoutong's debt ratio is so high, from the perspective of cash flow , it is because the net investment cash flow has always been negative.
Most of the net cash flow generated by operating activities is negative, but sometimes there are positive times. For example, the cash for operating activities in 2018 was 1.222 billion, because the inventory amount was better controlled in 2018, and the bills payable increased dramatically.
From the perspective of the assets and liabilities related to Jiuzhoutong's business activities:
prepaid to the supplier is obviously more than the prepaid customers' goods;
downstream customers owed Jiuzhoutong's payables and margin (other receivables), while Jiuzhoutong basically passed on all this financial pressure to upstream suppliers;
For Jiuzhoutong, whether the funds for operating activities are positive depends mainly on how inventory control was in that year.
(Table: Asset status related to Jiuzhoutong's operating activities from 2014 to 2018)
But the most important reason for the negative free cash flow is that the capital expenditure of purchasing fixed assets, intangible assets and other long-term assets is huge, which is reflected in the balance sheet, which is the continuous increase in fixed assets, projects under construction and intangible assets.
About 90% of the intangible assets are land use rights, and construction projects are almost all logistics centers in various places.
(Source: Some projects under construction in 2018)
2010 in the "Prospectus" disclosed: The company has successively invested in 14 provincial medical and medical flow centers in Hubei, Beijing, Henan, Shanghai, Xinjiang, Guangdong, Shandong, Fujian, Jiangsu, Chongqing, Liaoning, Inner Mongolia, Gansu, Jiangxi and other places, and has also built 20 municipal logistics centers.
(Data source: November 2010 "Prospectus")
Now Jiuzhoutong has planned and invested in the construction of 31 provincial medical and medical flow centers in provincial administrative regions across the country, and at the same time, it has extended downward and established more than 100 municipal distribution logistics.
(V) Summary
It is precisely because of the investment of Jiuzhoutong's heavy assets that lead to high administrative expenses and financial expenses, resulting in an extremely low net profit margin of Jiuzhoutong, which is only a few percent. It can be seen how "small profit" this is.
so that in order to control costs, Jiuzhoutong's funds are used uniformly on the group platform and are centrally purchased.
At the same time, heavy asset investment has also led to a continuous decrease in asset turnover rate. The ROE (diluted) of the entire company's non-net assets is not high. After its listing in 2010, it basically fluctuates at a level of 6%.
Finally, Fengyunjun made a mind map to summarize the content framework of this chapter, where fast turnover refers to fast turnover of accounts receivable and inventory.
(Picture: Market Value Storm)
. Conclusion
2018 Jiuzhoutong's annual report was inquired by the exchange. The primary problem is the phenomenon of "big deposits and big loans": the monetary cash is 12.7 billion, and the total long-term loans, short-term loans, and bonds payable are 11.876 billion. What the
exchange is obviously worried about is Jiuzhoutong’s currency and cash authenticity.
Fengyunjun believes that Jiuzhoutong has little problem, which is the financial feature of the circulation business.
If you consider that in 2018, operating income of 87.1 billion, accounts receivable of 20.7 billion, prepaid accounts of 3.8 billion, other receivables of 4.4 billion, notes payable of 14.8 billion, and accounts payable of 10.7 billion, facing these huge operating capital needs, even 12.7 billion in the account may be relatively tight, and there are nearly 3.8 billion short-term financing stock exchanges that have not been included.
also due to tight cash flow, the debt ratio of Jiuzhou Tong later raised 7.632 billion yuan in equity funds from 2010 to 2018, but only paid dividends for 5 years, totaling 893 million yuan, and the dividend payment rate was 13.66%. This level is not high, and Fengyunjun feels a little regretful.
The reasons for the last two no dividends are:
Note from the board of directors in 2014: The pharmaceutical distribution industry is capital-intensive, and the company is currently in a stage of rapid development. It is still necessary to continue to build a national logistics distribution system and expand its business scale to increase market share;
Note from the board of directors in 2016: The operating funds required for the continuous expansion of the business scale are increasing; the acquisition of municipal-level pharmaceutical companies is to improve the logistics distribution network; and the accounting period for the receivables of mid-to-high-end hospital business is relatively long.
Combined with the above analysis, Fengyunjun believes that the reasons for the explanation can be reasonable.
, and Jiuzhoutong has met the standards of three-year dividend return planning both times: the company's accumulated profits distributed in cash in the past three years are no less than 30% of the company's average annual distributable profits achieved in the past three years.
From 2013 to 2015, the cash dividend was 375 million yuan, and the average annual distributable profit was 578 million yuan, a proportion of 64.88%;
From 2016 to 2018, the cash dividend was 376 million yuan, and the average annual distributable profit was 1.221 billion yuan, a proportion of 30.79%.
Additionally, Fengyunjun believes that Jiuzhoutong's financial internal control has made progress, and financial reports are often revised or corrected.
Overall, since its establishment, Jiuzhoutong has been focusing on the main business of pharmaceutical circulation. Compared with state-owned enterprise giants in the circulation industry, it does not have the advantages of bargaining, credit and financial resources, but it fully utilizes the mechanism advantages of private enterprises, and its revenue scale, bargaining power for suppliers, and distribution network are improving.
However, the circulation business is in the case of low gross profit margin, heavy assets and high liabilities, which brings huge management and financial expenses. Jiuzhoutong's non-reliability ROE (diluted) is at a relatively low level. Fengyunjun found that the industry data comparison was also the lowest.
In response to the long-term stock price sluggishness, on August 1, 2019, Jiuzhoutong proposed in the "Repurchase Report": Use 300 million to 600 million to repurchase stocks in the next 6 months, with a price not exceeding 15 yuan per share.
has repurchased 550 million yuan as of September 30, accounting for 2.12% of the shares. At the end of 2019, Jiuzhoutong repurchased a total of 599.87 million yuan, accounting for 2.31% of the total share capital, and the amount has infinitely approached the upper limit of the 600 million yuan repurchase plan.
This is the first time that Jiuzhoutong has proposed a repurchase since its listing in 2010, and it has fulfilled its promise.
During this fight against the epidemic, more than 15,000 people in Jiuzhoutong were fighting on the front line, including the first to assist the Wuhan Red Cross Society in carrying out warehousing management of donated materials and drugs, and took the lead in making commitments in the industry to "not control sales, not increase prices" and "guaranteed supply, not increase prices, ensure quality, and ensure service".
On January 26, 2020, according to a reporter from China Securities Journal: Jiuzhoutong Group donated 10 million to fight the new coronavirus pneumonia epidemic in Wuhan. At the same time, the Spring Festival holiday has been cancelled and overtime is working, doing its best to ensure the supply of medicines across the country.
hopes that Jiuzhoutong will continue to work hard, continue to focus on its main business, control costs and improve efficiency, and create better results for shareholders.
Disclaimer:
This report (article) is an independent third-party research based on the public company attributes of listed companies and the information disclosed by listed companies based on their legal obligations (including but not limited to temporary announcements, periodic reports and official interactive platforms, etc.); Market value wind strives to ensure that the content and views contained in the report (article) are objective and fair, but do not guarantee their accuracy, completeness, timeliness, etc.; the information in this report (article) or the opinions expressed do not constitute any investment advice, and Market value wind shall not bear any responsibility for any actions taken by using this report.
