Performance decline, top executives falling from grace, why can't Guangzhou Baiyunshan Pharmaceutical Holdings (00874) stand up with the help of domestic "Viagra"?

With the two "flagship products" of the "Herbal Tea King" Wang Laoji and domestic leading male health products, Guangzhou Baiyunshan Pharmaceutical Holdings Co., Ltd. (hereinafter referred to as "Guangzhou Baiyunshan Pharmaceutical Holdings") was once the most well-known listed company under the Guangzhou Pharmaceutical Group. However, in recent years, Guangzhou Baiyunshan Pharmaceutical Holdings (00874) seems to have encountered many challenges. Whether it was involved in the "removal of online sales" controversy in the early years, having some of its products in provinces such as Shanxi, Anhui, Guizhou, and Shandong lose their online purchasing qualifications; or its subsidiary Guangzhou Pharma failing in its IPO, or the turbulence in senior management and declining performance since 2024, all indicate that the development of Guangzhou Baiyunshan Pharmaceutical Holdings may not be smooth. It is worth noting that Guangzhou Baiyunshan Pharmaceutical Holdings had already entered the A-share capital market in 2001 and was known as one of the top three domestic traditional Chinese medicine fast-moving consumer goods companies along with Yunnan Baiyao Group and Zhangzhou Pientzehuang Pharmaceutical, with a leading revenue scale in the industry. So, why has Guangzhou Baiyunshan Pharmaceutical Holdings "fallen" to this extent after more than 20 years, and what kind of insights can its development path over the past few decades provide to the industry? By unraveling the details and tracing its roots, perhaps we can find the answers. Pressure on traditional Chinese medicine companies collectively, making it difficult for Guangzhou Baiyunshan Pharmaceutical Holdings to stand alone Since 2024, the traditional Chinese medicine sector in the capital market has been under pressure. After the third-quarter financial reports were successively released, only 37.5% of the 72 companies in the traditional Chinese medicine sector on the Hithink RoyalFlush Information Network saw an increase in net profit attributable to the mother company, while 45 companies faced pressure on their performance in the first three quarters. During the reporting period, many leading traditional Chinese medicine enterprises such as Guangzhou Baiyunshan Pharmaceutical Holdings, Jianmin Pharmaceutical Group, and Chongqing Taiji Industry saw a decline in net profit, especially with a significant drop in the third quarter. The rise in the cost of Chinese herbal medicines, centralized procurement of Chinese patent medicines, and sluggish consumer demand are major reasons for the pressure on the performance of such enterprises. Specifically for Guangzhou Baiyunshan Pharmaceutical Holdings, in the first three quarters of 2024, the company achieved revenue of 59.06 billion yuan, a slight increase of 1.5% year-on-year; while the net profit attributable to the shareholders of the listed company was 3.159 billion yuan, a decrease of 16.68% year-on-year. This means that for the first three quarters, Guangzhou Baiyunshan Pharmaceutical Holdings presented a report card of increasing revenue but decreasing profits. Looking at the third quarter alone, during the reporting period, Guangzhou Baiyunshan Pharmaceutical Holdings recorded operating income of 18.017 billion yuan, a decrease of 1.08% year-on-year; while the net profit was 609 million yuan, a decrease of 37.82% year-on-year. Regarding the decrease in revenue and net profit in this quarter, Guangzhou Baiyunshan Pharmaceutical Holdings attributed it to the impact of macroeconomic fluctuations, market competition, and industry policies. In fact, the decline in performance of Guangzhou Baiyunshan Pharmaceutical Holdings had been anticipated. As early as 2021, its male health flagship product, the first domestically produced generic version of Viagra, had a gross profit margin as high as 91.28%, comparable to Maotai liquor, and its sales volume reached 98.49 million tablets, contributing nearly 1 billion yuan in revenue to Guangzhou Baiyunshan Pharmaceutical Holdings. It was under this momentum that Guangzhou Baiyunshan Pharmaceutical Holdings set out to achieve the grand goal of entering the "100 billion market value club." However, while the ambition was high, the reality was harsh. The following year, the sales volume and growth rate of this flagship product both decreased by over 10%. As a result, the net profit, which had been growing for ten consecutive years, began to decline, and the company's market value shrank continuously. As of the close of trading on November 14, Guangzhou Baiyunshan Pharmaceutical Holdings had a market value of 47.441 billion yuan, distancing itself further from its goal of a 100 billion market value. Some brokerage institutions attribute the slowdown or decline in its performance to the fact that its core products are no longer selling well, which has "dragged down" its overall performance level. At a deeper level, the industry competition is becoming increasingly fierce, with over twenty similar domestic manufacturers and overseas biotech companies competing with Guangzhou Baiyunshan Pharmaceutical Holdings.It is also a formidable competitor that cannot be ignored. Guangzhou Baiyunshan Pharmaceutical HoldingsCommittee members and any other positions.The frequent changes in senior management have also cast a shadow on the future development of Guangzhou Baiyunshan Pharmaceutical Holdings. It is important to note that the current Guangzhou Baiyunshan Pharmaceutical Holdings is under pressure for performance growth, and this is a critical period for the company to turn around its business performance. The potential crisis of the business giant lacking experienced leaders is self-evident. Taking the data from the first half of 2024 as an example, financial reports show that the company's revenue increased slightly by 2.68% year-on-year to 41.043 billion yuan, while net profit attributable to shareholders decreased by 9.31% year-on-year to 2.55 billion yuan. Looking at the different business segments, apart from the significant growth in the main commercial segment, the revenue of the large Southern Medicine and large Health segments both decreased year-on-year. It is worth noting that in the first half of 2024, the gross profit margins of these three main segments started to decline significantly, with a decrease of around 1 percentage point year-on-year. The overall gross profit margin was 19.0%, a 1.83% decrease compared to the same period of the previous year. At the same time, due to increased cash payments for purchasing raw materials and drugs by the company and its subsidiaries, the net cash outflow from operating activities exceeded 2 billion yuan at the end of the period; additionally, the total short-term debt at the end of the period exceeded 10 billion yuan, with the company's debt structure mainly consisting of short-term debt, and Guangzhou Baiyunshan Pharmaceutical Holdings' cash-to-short-term debt ratio also weakened compared to the end of 2023. More critically, in the third quarter of 2024, there were no signs of improvement in this declining trend. Guangzhou Baiyunshan Pharmaceutical Holdings' financial data for the third quarter of 2024 showed that the gross profit margin for the first three quarters of the year was 17.70%, a decrease of 2.35 percentage points year-on-year; the net profit margin was 5.57%, a decrease of 1.18 percentage points compared to the same period last year. Looking at the quarterly indicators, the downward trend becomes even more apparent. In the third quarter of 2024, the company's gross profit margin was 14.75%, a decrease of 3.62 percentage points year-on-year and a decrease of 0.28 percentage points quarter-on-quarter; the net profit margin was 3.45%, a decrease of 2.08% year-on-year and a decrease of 0.07% compared to the previous quarter. This also means that Guangzhou Baiyunshan Pharmaceutical Holdings' past era of high gross profit margins is a thing of the past, and its profitability is also declining significantly. In addition to performance fluctuations and internal instability, Guangzhou Baiyunshan Pharmaceutical Holdings has also frequently attracted attention from investors for crossing regulatory red lines. According to reports, in August 2022, the National Medical Insurance Bureau reported that during the more than ten years that Li Chuyuan was in charge of Guangzhou Baiyunshan Pharmaceutical Holdings, there were cases of artificially inflating the prices of raw materials and raising drug prices to divert funds at three companies under Guangzhou Baiyunshan Pharmaceutical Holdings including Tianxin Pharmaceutical and Guangzhou Baiyunshan Pharmaceutical Holdings Pharmaceutical Factory. Li Chuyuan was subsequently investigated. Afterwards, the official Guangzhou Baiyunshan Pharmaceutical Holdings also clarified the relevant events. While it is difficult to discern the truth in a few words, this is enough to indicate that under the tide of medical anti-corruption, Guangzhou Baiyunshan Pharmaceutical Holdings, which is experiencing a decline in performance, also faces challenges in internal operational management, such as compliance. With several key figures leaving the company, the future development of Guangzhou Baiyunshan Pharmaceutical Holdings will also be full of uncertainties. Conclusion As a longstanding Chinese brand on par with Yunnan Baiyao Group and Zhangzhou Pientzehuang Pharmaceutical, the advantages that Guangzhou Baiyunshan Pharmaceutical Holdings holds in the Chinese medicine industry are self-evident. However, it is regrettable that despite holding a strong hand, Guangzhou Baiyunshan Pharmaceutical Holdings has not shown the momentum to make a significant impact. Thus, its previously set target of a market value of one trillion yuan has almost become a pipe dream. In the secondary capital market, the market value of Guangzhou Baiyunshan Pharmaceutical Holdings is less than half of Yunnan Baiyao Group's and only about one-third of Zhangzhou Pientzehuang Pharmaceutical's. Therefore, whether comparing brand value with peers horizontally or historical performance vertically, Guangzhou Baiyunshan Pharmaceutical Holdings may find it difficult to rest easy. We look forward to seeing Guangzhou Baiyunshan Pharmaceutical Holdings, once a company with numerous honors and a wealth of high-quality assets, regain its dominance and achieve its grand goals. This article was reprinted from the "Yu Jian Column" WeChat public account, edited by GMTEight: Chen Xiaoyi.