Guangzhou Baiyunshan Pharmaceutical Group Co., Ltd. (hereinafter referred to as “Baiyunshan”) was once the most famous listed company under the Guangzhou Pharmaceutical Group, with Wang Laoji, the “king of herbal tea”, and top domestic male health products.

However, in recent years, Baiyun Mountain (00874) seems to have entered an eventful autumn. Whether it was involved in the “withdrawal from the net” crisis in the early years, some drugs in Shanxi, Anhui, Guizhou, Shandong and other provinces were disqualified from online procurement; or the collapse of its subsidiary Guangzhou Pharmaceutical's IPO, or the turbulence in senior management and declining performance since 2024, all indicate that Baiyun Mountain's development may not be smooth.

You need to know that Baiyunshan entered the A-share capital market as early as 2001. Along with Yunnan Baiyao and Pien Ziyao, it is known as the “Three Musketeers” of the domestic Chinese Medicine Fast Sale, and its revenue scale is second to none in the industry.

So, after more than 20 years, why did Baiyun Mountain “fall” to this point, and what kind of enlightenment did its development over the past few decades bring to the industry? We may be able to find an answer by peeling back the matter and finding the roots.

Traditional Chinese medicine companies are under collective pressure, making it difficult for Baiyun Mountain to stand alone

Since 2024, the traditional Chinese medicine sector of the capital market has been under collective pressure. After the third quarter results were revealed one after another, out of 72 companies in the Tonghuashun Chinese Medicine sector, only 37.5% achieved a year-on-year increase in net profit to their mother, and the results of 45 companies in the first three quarters were under pressure.

During the reporting period, the net profit of many leading Chinese medicine companies, represented by Baiyunshan, Jianmin Group, and Taiji Group, declined significantly, especially in the third quarter. According to analysis, rising prices of Chinese herbal medicines, collection of proprietary Chinese medicines, and sluggish consumption are the main reasons that are putting pressure on the performance of such companies.

Looking specifically at Baiyunshan. In the first three quarters of 2024, Baiyunshan achieved revenue of 59.06 billion yuan, a slight increase of 1.5% over the previous year; net profit attributable to shareholders of listed companies was 3.159 billion yuan, a year-on-year decrease of 16.68%. This also means that in the first three quarters, Baiyun Mountain handed over a report card that increased revenue and did not increase profit.

Looking at the third quarter alone, during the reporting period, Baiyunshan recorded operating income of 18.017 billion yuan, a year-on-year decrease of 1.08%; while net profit was 0.609 billion yuan, a year-on-year decrease of 37.82%. Regarding the decline in both revenue and net profit during the quarter, Baiyunshan said that the decline in performance was mainly affected by factors such as macroeconomic fluctuations, market competition, and industry policies.

In fact, the decline in Baiyunshan's performance has long been predicted. As early as 2021, as the first Wanaike imitation product in China, its gross margin for men's health products was as high as 91.28%, which is comparable to Maotai's. Its sales volume was as high as 98.4982 million pieces, contributing nearly 1 billion yuan in revenue to Baiyun Mountain.

It is also under this momentum of development that Baiyun Mountain has called out the grand goal of moving towards a “100 billion market capitalization club.”

However, ideals are rich, and reality is very boring. The sales volume and growth rate of this fist product from Baiyun Mountain both declined by more than 10% the following year. Along with that, net profit, which has been growing continuously for 10 years, has begun to show a downward inflection point, and the company's market value has shrunk over and over again. By the close of trading on November 14, Baiyun Mountain's market capitalization of 47.441 billion yuan was getting farther and farther away from its target market capitalization of 100 billion yuan.

Regarding the slowdown or even decline in its performance growth rate, some brokerage agencies have analyzed that the root cause is that its core products are no longer selling well, “dragging down” its overall performance level. The deeper reason is that competition in the industry is becoming more and more intense. Apart from over 20 domestic manufacturers of similar products, overseas biotechnology companies are also competitors that cannot be ignored.

A good hand, but they didn't play “Wang Bang”

In fact, as one of the Three Musketeers of Traditional Chinese Medicine, Baiyun Mountain once had the aura of an “old brand” on his head. Moreover, judging from the company's overall business layout, its business segments include “Danan Pharmaceutical,” “Big Business,” “Big Health,” and “Big Healthcare,” which covers a wide range of fields. You could say that Baiyunshan has a good hand.

However, compared to developing these traditional industries, Baiyun Mountain seems to prefer businesses that make money through “branding.” According to media statistics, through this method, Baiyun Mountain can make more than 100 million yuan a year. Moreover, the business in this sector is developing rapidly, and it has even become the fastest growing business among all major business segments in Baiyunshan.

However, the branded “fee-for-fee” business model is also a double-edged sword, and has even caused Baiyunshan to repeatedly fall into crisis of brand trust. Various incidents involving suspected false promotion and pyramid scheme sales of its branded products have also often caused Baiyun Mountain to be scolded, and even brought to the forefront of public opinion.

It is worth mentioning that in the Dana Pharmaceutical sector, where controlling shareholders' expectations are high, there are 12 time-honored Chinese pharmaceutical companies. Of these, 21 pharmaceutical companies have a history of more than 100 years, and they are truly time-honored brands. However, there is poor feedback from the traditional time-honored proprietary Chinese medicine market, and the revenue growth in the Danan Pharmaceutical sector is also somewhat unsatisfactory.

Financial data shows that in 2019-2021, excluding sales of “star drugs” that focus on men's health, the revenue of the Danan Pharmaceutical segment was 10.897 billion yuan, 9.366 billion yuan, and 9.801 billion yuan respectively. The year-on-year growth rate was only a single digit, and 2020 showed negative growth. Furthermore, 12 time-honored Chinese brands did not contribute much to Baiyunshan's performance.

For example, the 400-year-old brand represented by Chen Liji is as famous as Tong Ren Tang, but the market response is far less than that of Tong Ren Tang. Comparing its R&D expenses horizontally, Baiyun Mountain is also unbeatable to its peers.

In recent years, Baiyunshan's R&D expenses are even more than half of Donga Ejiao and China Resources 39. In stark contrast to this, Baiyun Mountain is not stingy when it comes to advertising and marketing.

For example, financial data shows that in 2023, the company's sales expenses increased further. Among them, advertising expenses exceeded 1 billion yuan, hitting an average of nearly 3 million yuan per day. In stark contrast to this, the company's R&D expenses, which have declined again, have been reduced to less than 0.8 billion yuan.

Meanwhile, in 2023, Baiyunshan's R&D investment capitalized ratio declined further. In 2022, the company's capitalized R&D investment was 0.25 billion yuan, and the R&D investment capitalization ratio was 23.53%; in 2023, Baiyunshan capitalized R&D investment was 70.049 million yuan, and the R&D capitalization ratio dropped to 8.22%.

It can be seen from this that Baiyunshan, which holds many century-old brands, did not have the effect of hitting a good hand with a bang; instead, it was somewhat unsatisfactory in terms of overall performance. In particular, under its “heavy marketing and light R&D” development strategy, it also caused the capital market to begin to waver in its confidence, and its stock price and market value have shrunk over and over again.

Executives are in turmoil, and it may be difficult for Baiyun Mountain to get out of trouble

In addition to worrying about the decline in performance, Baiyun Mountain's senior management is also full of worries due to frequent turmoil.

In mid-July 2024, according to a comprehensive report by Global Network Finance, Baiyunshan officially issued an announcement announcing that Li Chuyuan, chairman of the company, resigned as chairman of the 9th board of directors, executive director, and director of the strategic development and investment committee of the board of directors due to personal reasons.

Later, at the beginning of September, Baiyunshan also disclosed an announcement stating that it had received a report on the resignation of company director Zhang Chunbo. According to the report, due to personal reasons, Zhang Chunbo resigned from any position, such as a director of the company and a member of the Board Budget Committee.

Frequent changes in senior management also cast a shadow over Baiyun Mountain's future development. You need to know that in Baiyun Mountain, performance growth is currently under pressure, and it is a critical period for the company to reverse the decline in performance. The potential crisis of commercial giants lacking a veteran helmsman goes without saying.

Taking the data for the first half of 2024 as an example, financial data shows that the company's revenue increased slightly by 2.68% year on year to 41.043 billion yuan, and net profit to mother fell 9.31% year on year to 2.55 billion yuan.

By business segment, with the exception of the large commercial sector's revenue, which continued to grow, the revenue of the Danan Pharmaceutical and Big Health sectors all declined year-on-year.

It is worth noting that in the first half of 2024, the gross margins of the above three sectors began to decline markedly, all with a year-on-year decrease of 1 percentage point. The final overall gross margin was 19.0%, down 1.83% from the same period last year.

At the same time, the company's net cash outflow from operating activities at the end of the period was over 2 billion due to an increase in cash payments for raw materials and pharmaceuticals by the company and its subsidiaries; furthermore, the company's total short-term debt at the end of the period exceeded 10 billion dollars. The company's debt structure was mainly based on short-term debt, and Baiyunshan's short-term cash to debt ratio was also weaker than at the end of 2023.

What is even more fatal is that in the third quarter of 2024, this decline showed no signs of improving. According to Baiyunshan's third-quarter earnings data, in the first three quarters of 2024, the company's gross margin was 17.70%, down 2.35 percentage points from the previous year; the net interest rate was 5.57%, down 1.18 percentage points from the same period last year.

Judging from single-quarter indicators, the downward trend is even more obvious. The company's gross margin for the third quarter of 2024 was 14.75%, down 3.62 percentage points year on year and 0.28 percentage points month on month; net margin was 3.45%, down 2.08% from the same period last year and 0.07% from the previous quarter.

This also means that Baiyun Mountain's past era of high gross profit has become a thing of the past, and its profitability has declined markedly.

In addition to fluctuating performance and high-end turmoil, Baiyun Mountain has also frequently attracted investors' attention because it has touched the red line of regulation.

According to media reports, in August 2022, the National Health Insurance Administration reported that during Li Chuyuan's tenure of Baiyunshan for more than ten years, three companies, including Tianxin Pharmaceutical and Baiyunshan Pharmaceutical General Factory, inflated the prices of APIs and withdrew funds.

Since then, Baiyun Mountain officials have also clarified the relevant incident. Although it is difficult to explain the truth in three words or two, this is enough to show that Baiyunshan, whose performance is declining under the wave of medical anti-corruption, is also facing internal management challenges such as corporate compliance.

And with the “departure” of many of the company's core figures, how Baiyun Mountain will develop in the future will also be full of variables.

epilogue

It is an old Chinese brand with the same name as Yunnan Baiyao and Pien Ziyao. Baiyunshan's advantages in the traditional Chinese medicine industry are self-evident.

Regrettably, Baiyun Mountain, which has a good hand, is not showing the momentum of “killing the Quartet.” So much so that its previously set market capitalization target of 100 billion dollars has almost come to nothing.

However, in the secondary capital market, Baiyunshan's market value is less than one-half of Yunnan Baiyao's; it is only about one-third of Pien Tsai's.

Therefore, whether it is a horizontal comparison of the brand value of peers or a vertical comparison of its historical performance, it is probably difficult for Baiyun Mountain to rest easy.

I hope that Baiyun Mountain, which has many aura and many high-quality assets in the past, will soon regain its strength and achieve its grand goals.

This article is reprinted from the WeChat account of “Yu Jian Column”, Zhitong Finance Editor: Chen Xiaoyi.