Maotai is widely regarded as a hard currency for gift-giving and inviting guests.

Unbeknownst to me, once upon a time, Maotai+Pien Tsai Lan was the only high-end business banquet. In the minds of some Fujian people, Pien Tsai even has a higher status than Maotai.

After the epidemic, the prices of Flying Moutai and Pien Tsai Gong soared, reaching a peak in 2021. The price of Pien Tsai was once speculated to 1,600 yuan/capsule, but then it began to drop rapidly.

Recently, the price of Flying Moutai has dropped to around 2,200 yuan/bottle several times. As a “bad brother, difficult brother,” the price has also been falling all the way down in the past two years. Many scalpers already have prices lower than the official guide price of 760 yuan/piece.

Behind all the price cuts, the “Maotai people”, who have scarce hands, have also gradually fallen into a growth crisis, as evidenced by declining profit growth and continued falling stock prices.

Compared with the historical highs in 2021, the stock prices of Maotai and Pien Tsai Lang are close to falling.

In the past, there was a belief that every time the “Maotai people” stock price fell, it was an opportunity to get on the bus.

Is that still the case now?

01

It is also a Fujian pharmaceutical company, and its main business is liver medicine. Recently, Pien Tsai invested 0.196 billion to indirectly take a stake in Guangshengtang. Guangshengtang shareholders sold shares at a discount, which can be described as a “liver and liver comparison.”

Aohua Group transferred its 8 million shares of Guangshengtang to Yuanshan Fund at a consideration of 0.196 billion yuan. The transfer price was 20% off the closing price on the trading day before the agreement was signed.

However, Yuanshan Fund's largest investor is Zhangzhou Pien Tsai Investment Management Co., Ltd., and most of the other general partners and limited partners are also state-owned enterprises in Zhangzhou, Fujian, which are closely related to Pien Tsai.

Therefore, after the transaction is completed, Pien Tsai will invest indirectly in Kwong Sheng Tang.

The biggest question about this deal is whether traditional Chinese medicine and Western medicine can collaborate in the field of liver disease?

Compared to Pien Tsai Hao, Koshengdang is much less famous. In the early days, Guangshengtang products were relatively messy. There were both proprietary Chinese medicines for anti-hepatitis, as well as products such as antihypertensive teas and diet teas. They were mainly made as generic drugs, and R&D investment was low. However, there are relatively many similar products in the generic drug market, the market competition is fierce, and Guangshengtang does not have much advantage.

Later, Guangshengtang gradually identified the market and began to focus on R&D, production, and sales of nucleoside anti-hepatitis B virus drugs, and only then gradually began to occupy a certain market share.

As products are included in collection, prices have dropped further, and the gross margin of drug collection has dropped beyond measure.

Take Guangshengtang as an example. In 2023, the gross margin of Guangshengtang's centralized procurement channel was only 16.86%, far lower than 75.40% of direct sales and 30.70% of distribution. Since then, the company's profit level has declined sharply.

It is also for this reason that since its launch, Guangshengtang has made it clear that it wants to transform into an innovative pharmaceutical company.

High investment in R&D of innovative drugs, combined with the continued compression of traditional business profits, has put even greater pressure on Guangshengtang's performance in recent years. From 2021 to 2023, Guangshengtang lost money one after another, with a cumulative loss of 0.511 billion yuan.

For Pien Tsai, the return on this investment was not significant, but now Pien Tsai is in urgent need of investment to find a new direction of growth and maintain performance growth.

In August of this year, Pien Tzai also plans to invest 0.254 billion yuan to acquire 100% of the shares of Mingyuan Fragrance held by Zhangzhou SDIC, thereby receiving 30% of the shares in Narcissus Pharmaceutical, which is the oldest wind oil essence brand in China.

However, there are more doubts about this deal because the potential of the wind oil essence market is limited, and it is difficult to have a synergy effect with Pien Tsai's business, and the valuation is too high, which is fraught with doubts.

Soon, the exchange issued a regulatory letter to Pien Tsai, requesting further verification and explanation of the relevant issues. Afterwards, Pien Tsai announced the suspension of execution of the transaction after responding to some of the issues.

Successive acquisitions may have shown Pien Tsai Lai's current anxiety from one side.

In the first half of this year, Pien Tsai's revenue and net profit growth rate reached the lowest level in the same period since 2016. In the second quarter, Pien Tsai's net profit even declined year-on-year, and this was the first time in nearly seven years.

Compared to the highest point in 2021, Pien Tsai's stock price has dropped by nearly half. For Pien Tsai, which relies on the big single product, Pien Tsai Pill, it is not easy to maintain high growth over a long period of time.

02

When the people in Fujian who love Pien Tsai Kuo no longer regard Pien Tsai Kuo as a must-have gift, and are no longer “a slice before and after the bar”, compounded by consumer attributes, the impact was even more intense under the wave of consumption downgradation.

It's hard to deny that Pien Tsai Chun still has value that is hard to replace with other products.

Take Tongrentang's large single product, Angu gyuhuang pills, as an example. Although Tongrentang accounts for more than 50% of the market share of Angong gyuhuang balls, Angu gyuhuang pills are not an exclusive variety of Tongrentang.

Currently, there are more than 120 companies that have approved the production of Angong gyuhuang pills, and even Pien Tsai's Angong gyuhuang pills have a market share of nearly 5%.

However, due to the double confidentiality of the ingredients and process, Pien Tsai Pang's tablets are still absolutely scarce.

Along with the increase in the price of natural musk and natural beef yolk, the price of pianzai has skyrocketed over the past 20 years, from 325 yuan/grain in 2004 to 760 yuan/capsule today.

However, the price increase did not affect users' enthusiasm for purchases. In the ten years from 2014 to 2023, Pien Tsai's revenue soared from 1.454 billion yuan to 10.06 billion yuan, and net profit also increased from 0.429 billion yuan to 2.797 billion yuan.

The double-digit annual growth rate of Pien Tsai Yi's sales is far higher than the compound annual growth rate of the single-digit price of Pien Tsai Pak tablets. It can be seen that Pien Tsai's consumers are relatively less sensitive to price. Over the long term, Pien Tsai's performance remains stable.

Coupled with the common characteristics of the entire traditional Chinese medicine industry, that is, investment in R&D is not high, and Pien Tsai's R&D expenses account for only about 2%. For Pien Tsai, it can be said that it is lying on a golden mountain counting money.

In addition to stable performance, Pien Tsai has begun searching for the company's second growth curve.

In recent years, Pien Tsai has been active in the cosmetics business. Currently, it owns many skincare and care brands such as “Pien Tsai”, “Empress”, and “Dr. Kim,” but it still accounts for less than 20% of overall revenue.

In the pharmaceutical industry, Pien Tsai's Angong beef yellow pills are also gradually gaining a certain share of the market and are viewed as a potential big product.

Anxiety about growth is not limited to Pien Tsai Yao. In recent years, Maotai, which is similar to Pien Tsai's situation, has also adopted measures such as co-branding and launching Maotai ice cream to cultivate young users. In addition to Yunnan Baiyao's daily chemical industry, which is limited to toothpaste, other companies such as Rentang and Donga Ejiao have still not stepped out of their own three-acre site to find a new direction of growth.

For these businesses. It is certainly difficult to grow if you want to keep the country steady, but you won't have time to sit back and eat. If you innovate and fight for the country, you face even greater risks.

Change, or not change, is a very serious issue.

Today, Pien Tsai has long gone through a period of growth requiring a large amount of investment. It can also be seen from Pien Tsai's negative financial expenses. Most of them have bought bank financial management and are receiving interest.

However, for Pien Tsai's shareholders, the holding experience may not be very good.

Looking at past data, we can see that before 2022, Pien Tsai's dividend rate was around 30% all year round, but it wasn't until 2023 that it increased to about 50%. Since listing, the average dividend rate was only 35.36%.

In contrast, Yunnan Baiyao's dividend rate has been around 80% in recent years, and the average dividend rate since its launch has reached 56.41%. Meanwhile, in Kweichow Moutai, the dividend rate has also risen from around 50% in the past many years to over 80% in the past two years.

Currently, Pien Tsai's business does not cost much, and the investment in construction projects is not high. The 50% dividend rate is not too high.

Moreover, throughout the year, Pien Tsai's dividend ratio has been relatively low, only around 1%. Even after 2015, it has basically been less than 1%. Although the dividend rate has risen as stock prices have continued to fall, it is still relatively low.

However, in recent years, Pien Tsai's shareholder holdings have remained relatively stable.

This is because in the shareholding structure, Pien Tsai's shareholding structure is almost the same as Kweichow Moutai. Zhangzhou Jiulongjiang Group Co., Ltd. directly and indirectly controls 54.78% of the company's shares, so the actual controller is the Zhangzhou State-owned Assets Administration Commission, which holds 90% of the Jiulongjiang Group's shares.

In August 2023, the chairman of Pien Tsai was replaced by Lin Zhihui, who worked for the Zhangzhou Municipal Commission for Discipline Inspection for three years. This is also very similar to Kweichow Moutai.

In fact, judging from the business model, Pien Tsai, which also has monopoly, high gross profit, recyclability, and scarcity, is well deserved to be known as Maotai in medicine.

However, compared to Maotai, Pien Tsai faced more controversy.

This is because although Maotai's prices have been cut one after another in recent years, as can be seen from the huge difference between Maotai's factory price and the batch price, currently Maotai is still in short supply.

However, after 21 years of crazy hype, the price of second-hand Pien Tsai is now lower than the guide price. It can be seen that its recognition among the audience is gradually declining.

This certainly had an impact on the environment. After all, before that, Pien Tsai was given certain social and consumer attributes, but as the wave of consumption downgrades hit, users' psychological expectations were adjusted, and Pien Tzai's consumer attributes were first stripped away, which led to the price drop all the way down.

But at the same time, the East China region, where Pien Tsai Lai is based, has also fallen out.

In previous years, the East China region accounted for more than 60% of Pien Tsai's overall revenue all year round, but since this year, revenue has continued to grow in units. This is also an important factor in the slowdown in Pien Tsai's performance growth.

Facing the current situation where the growth of the main business is slowing down and the growth of side businesses is limited, Pien Tsai will probably have to go through a difficult period of time.

03

epilogue

In recent years, compared to the entire pharmaceutical sector falling into a slump under the wave of collection, the traditional Chinese medicine sector still maintained a relatively high gross profit margin because proprietary Chinese medicines were rarely included in collection.

As a leader in traditional Chinese medicine, Pien Tzai, whose business model is almost perfect, has maintained an overvalued value for a long time, far higher than the entire traditional Chinese medicine industry. However, in the last two years, Pien Tsai was unable to escape the general environment, and valuations declined.

Pien Tsai's latest dynamic PE is 48 times higher. Although this valuation has fallen by more than half from its historical high and is close to the level when the stock market collapsed in early 2016, it is still high compared to the Chinese medicine industry as a whole. In contrast, Tongrentang PE is 34, and Yunnan Baiyao PE is only 24. However, in Maotai, the cross-industry target of Pien Tsai, the dynamic PE is only 23.

From the perspective of capital, the appeal of a company like Pien Tsai Yao mainly comes from two aspects. One is that the valuation is undervalued, that is, it is very cheap, and there is a definite expectation of future valuation repair; the other is that it does a lot in terms of returns to investors. For example, the repurchases are very active and the dividends are very generous.

However, in these two aspects, Pien Tsai did not perform particularly well.

In the long run, Pien Tsai's fundamentals will not waver. However, in the face of changes in the general environment, Pien Tsai Yao, who has yet to find a new direction of growth, wants to truly win the heart of capital, either wait for the overall stock market to recover and valuations return to expansion, or the management will show more “sincerity” in breaking through growth bottlenecks and rewarding investors. (End of full text)