After experiencing rapid growth in the first half of 2023, Harbin Pharmaceutical Co., Ltd. (600664.SH) continued to perform well in the 3rd quarter.

On October 27, the three-quarter report disclosed by Harbin Pharmaceutical Co., Ltd. (600664.SH) showed that revenue and net profit for the first three quarters of 2023 were 11.494 billion yuan and 291 million yuan respectively, up 15.05% and 85.72% year-on-year respectively.

The increase in profit in a single quarter was quite remarkable.

The revenue of Harbin Pharmaceutical Co., Ltd. in the third quarter of this year was 3.790 billion yuan, up 6.03% year on year. Net profit for the same period was 108 million yuan. The year-on-year growth rate was 213.43%, 207.4 percentage points higher than revenue.

In response, Harbin Pharmaceutical Co., Ltd. explained that it has continuously upgraded and iterated health products, which in turn has increased its gross profit margin.

However, this may be related to the low base position of Harbin Pharmaceutical Co., Ltd. in the same period in 2022.

In the third quarter of 2022, due to limited deliveries due to the epidemic, there was a certain decline in sales in the industrial sector under Harbin Pharmaceutical Co., Ltd., which mainly focuses on health products. As a result, net profit for the current period was only 34 million yuan, down 76.19% from the previous year.

Because of this, the sharp increase in profit of Harbin Pharmaceutical Co., Ltd. has also returned to the normal level of the past.

However, the performance growth of Harbin Pharmaceutical Co., Ltd. is also facing tests.

Harbin Pharmaceutical Co., Ltd. has used health products as an important growth point. However, after the epidemic receded, the market demand for health products is returning to rationalization. Combined with the downturn in the consumer market, health products companies are being tested even more.

Under the double whammy, Harbin Pharmaceutical Co., Ltd. may be facing the challenge of sustainable growth.

Return to normal levels

In the wailing three-quarter report, the performance of some companies can be described as “soaring through the sky.”

On October 27, the three-quarter report disclosed by Harbin Pharmaceutical Co., Ltd. showed that revenue and net profit for the first three quarters of 2023 were 11.494 billion yuan and 291 million yuan respectively, up 15.05% and 85.72% year-on-year respectively.

It is worth mentioning that Harbin Pharmaceutical Co., Ltd. has previously set a revenue target of reaching 14.8 billion yuan in 2023.

This means that as long as Harbin Pharmaceutical Co., Ltd. completes a turnover of 3.306 billion yuan in the fourth quarter, it can achieve this goal.

Excluding data for the first half of the year, the profit growth rate of Harbin Pharmaceutical Co., Ltd. in the third quarter was remarkable. Current revenue was 3.790 billion yuan, up 6.03% year on year, and net profit for the same period was 108 million yuan. The year-on-year growth rate was 213.43%, and the growth rate was 207.4 percentage points higher than revenue.

Specifically, the cost and expense categories of Harbin Pharmaceutical Co., Ltd. have not been optimized to a large extent.

In the third quarter of 2023, the total operating cost of Harbin Pharmaceutical Co., Ltd. was 3.638 billion yuan, an increase of 3.59% over the previous year. The total amount of expenses including finance, management, sales and R&D during the same period was 814 million yuan, an increase of 17.97% over the previous year.

In response, Harbin Pharmaceutical Co., Ltd. explained that it mainly optimizes the layout of health products (health products).

“Mainly because the company actively adopted various measures and adjusted the product strategy layout to meet consumers' demand for health products, optimized core products, and continued to upgrade and iterate, this in turn increased gross profit margin and led to an increase in net profit.” Harbin Pharmaceutical Co., Ltd. pointed out.

In fact, the health products revenue of Liha Pharmaceutical Co., Ltd. has increased significantly in the past 3 years, from 79 million yuan in 2020 to 766 million yuan in 2022, and the share also increased from 0.06% to 5.57%; while the gross margin of health products is quite impressive, with gross margin reaching 67.61% in 2022.

TradeWind01 (ID: TradeWind01) sought further evidence from Harbin Pharmaceutical Co., Ltd. on whether optimizing core products to increase gross margin involved “price increase” operations for health products, etc., but the relevant sources did not respond.

However, the reason behind the high growth trend in the profit of Harbin Pharmaceutical Co., Ltd. may also be related to the low base for the same period last year.

In the third quarter of 2022, due to limited deliveries due to the epidemic, sales in the industrial sector of Harbin Pharmaceutical Co., Ltd. mainly health products, APIs and other pharmaceuticals declined to a certain extent, leading to a sharp decline in profit — current revenue was 3.675 billion yuan, an increase of 7.24%. Net profit from the mother during the same period was only 34 million yuan, down 76.19% from the previous year.

“Mainly due to the pandemic, delivery was restricted and sales in the industrial sector declined, which affected the decline in net profit of the mother compared to the same period.” Harbin Pharmaceutical Co., Ltd. said.

In the third quarter of 2022, the net interest rate of 1.43% of Harbin Pharmaceutical's shares hit a new low, ranking at the lowest point in the four quarters of 2022.

Against this background, after the epidemic situation eased, the sharp rise in net profit of Harbin Pharmaceutical Co., Ltd. in the third quarter of 2023 actually returned to normal levels.

Double sided clamping

Health products are becoming an important growth point in the performance of Harbin Pharmaceutical Co., Ltd.

As early as 2019, Harbin Pharmaceutical Co., Ltd. began channel-side reforms in drug sales, set up an e-commerce division, and plans to expand online. Coinciding with the outbreak of the epidemic in 2020, market demand for health products also continued to increase.

However, compared to products such as generic drugs, health products clearly have a higher gross profit margin.

Precisely based on this background, the profit side of Harbin Pharmaceutical Co., Ltd. has greatly improved. In 2021 and 2022, net profit was 371 million yuan and 464 million yuan respectively, with increases of 134.43% and 25.14% respectively; net interest rates reached 3.20% and 3.70% during the same period, reversing the decline.

“The pandemic should be said to be a catalyst. Consumer understanding of health has been raised to a new level, so it has spawned demand for health products.” A consumer industry analyst in Beijing told Xinfeng (ID: TradeWind01).

In the 2022 financial report, Harbin Pharmaceutical Co., Ltd. further indicated that it has taken the health products business as a key growth engine, and has set up a subsidiary of Harbin Pharmaceutical Health Technology to be responsible for the health products product line, focusing on online channels; in terms of product development, it has launched characteristic health products combining China and the West through the construction of a Chinese and Western health products platform.

It is true that now the results are gradually showing.

During the 618 period of this year, sales of GNC brand health food under Harbin Pharmaceutical Co., Ltd. exceeded 100 million yuan, an increase of 109% over the previous year.

Although Harbin Pharmaceutical Co., Ltd. did not disclose the specific sales situation of e-commerce channels in its three-quarter report, it indicated to TradeWind01 (ID: TradeWind01) that since e-commerce channels are in a low base state, overall growth is currently remarkable.

“Actually, our e-commerce is still in a stage of rapid development. Since we only started investing heavily in e-commerce at the beginning of last year, it is still in the growth stage, and the effects it has brought are quite remarkable.” Harbin Pharmaceutical Co., Ltd. stated to TradeWind01 (ID: TradeWind01).

However, now the health products business of Harbin Pharmaceutical Co., Ltd. may be facing growth difficulties.

In fact, compared with the first quarter of this year, Harbin Pharmaceutical Co., Ltd.'s net profit of 108 million yuan in the third quarter of this year has actually declined 11.48 percentage points; compared with the third quarter of 2021, which is still in the epidemic phase, the net profit of Harbin Pharmaceutical Co., Ltd. has fallen 25% in the same period this year.

One reason is that after experiencing high growth in the pandemic era, how to maintain a trend of sustainable growth in performance has become a common problem facing health product companies.

In the third quarter of this year, the revenue of health products company Tomson Beijian (300146.SZ) was 2.186 billion yuan, with a year-on-year growth rate of only 12.75%. Compared with the 36.30% and 28.20% year-on-year revenue growth rates in the first and second quarters of this year, there has been a sharp decline. Tomson Beijian's net profit for the same period was 363 million yuan, down 17.74% from the previous year. Compared with the 55.27% and 33.89% increases in the first and second quarters of this year, there was a big dive.

In response, Tomson Beijian also pointed out that the online growth rate of leading brands has slowed down.

“Overall, the growth trend of the top brands of major e-commerce platforms slowed down in the third quarter.” Tomson Beijian said.

At the same time, the slump in the consumer market may also be limiting the performance growth of health products companies.

Under the double whammy, it remains to be seen whether the focus on health products is still a good business for Harbin Pharmaceutical Co., Ltd.