HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

Equity Capital Markets

Deshengtang Pharmaceutical Co Ltd / Equity Capital Markets

Deshengtang Pharmaceutical Co Ltd (DESE HK)

<ul>
<li>Due to COVID-19, the consumption pattern of customers has changed.The rapid development period of pharmacies is coming to an end and the industry has entered a new era of integration.</li>
<li>The essence of Deshengtang's business model is more like traditional retail offline pharmacies, relying heavily on selling drugs. The Company's healthy gross margin gives hope for an early turnaround. </li>
<li>However, no matter from which field to seek expansion, Deshengtang would encounter strong competitors.It remains to see if Deshengtang can survive in the industry rather than be acquired by competitors.</li>
</ul>


Due to COVID-19, the consumption pattern of customers has changed.The rapid development period of pharmacies is coming to an end and the industry has entered a new era of integration.
The essence of Deshengtang's business model is more like traditional retail offline pharmacies, relying heavily on selling drugs. The Company's healthy gross margin gives hope for an early turnaround. 
However, no matter from which field to seek expansion, Deshengtang would encounter strong competitors.It remains to see if Deshengtang can survive in the industry rather than be acquired by competitors.


Pre-IPO Deshengtang Pharmaceutical - Benign Development Momentum, but Still Face Some Risks

<ul>
<li>YSB's business model is closer to that of pharmaceutical distribution enterprises, who could carry out businesses similar to YSB based on huge market share/resource advantages/financial strength. YSB’s moat isn't high.</li>
<li>The business structure of “Self-operation Business + Online Marketplace” of YSB could involve certain policy risks. Given the nature of its business, YSB’s profit margin is difficult to improve significantly.</li>
<li>
<a href="https://www.smartkarma.com/entities/ysb-inc" target="_blank" data-smartkarma-citation="entities:35982:1" rel="noopener">YSB Inc (YSB HK)</a>’s revenue scale could encounter bottlenecks after reaching a certain stage of growth. The valuation of YSB should be lower than that of traditional pharmaceutical distribution enterprises.</li>
</ul>


YSB's business model is closer to that of pharmaceutical distribution enterprises, who could carry out businesses similar to YSB based on huge market share/resource advantages/financial strength. YSB’s moat isn't high.
The business structure of “Self-operation Business + Online Marketplace” of YSB could involve certain policy risks. Given the nature of its business, YSB’s profit margin is difficult to improve significantly.

YSB Inc (YSB HK)’s revenue scale could encounter bottlenecks after reaching a certain stage of growth. The valuation of YSB should be lower than that of traditional pharmaceutical distribution enterprises.


Pre IPO YSB Inc (PHIP Updates) - Low Margins Are Inevitable; Valuation Upside Potential Is Limited

Equity Bottom-Up

China Resources Pharmaceutical Group / Equity Bottom-Up

China Resources Pharmaceutical Group (3320 HK)

<ul>
<li>2022 was a turning point for China Resources Pharmaceutical (CRP), because performance of core subsidiaries saw a historic improvement.After China reopens, CRP is expected to achieve double-digit growth in 2023.</li>
<li>CRP’s development history indicates that its current scale/industry position are mainly due to continuous M&amp;A based on SOE resource advantages/background, but holding platform companies have valuation discounts in secondary market.</li>
<li>Different business models lead to different valuation logic. But Sinopharm/SH Pharma/CRP all enjoy SOE background dividends+valuation system with Chinese characteristics. If investors mainly focus on industry trend, they can all be invested.  </li>
</ul>


2022 was a turning point for China Resources Pharmaceutical (CRP), because performance of core subsidiaries saw a historic improvement.After China reopens, CRP is expected to achieve double-digit growth in 2023.
CRP’s development history indicates that its current scale/industry position are mainly due to continuous M&amp;A based on SOE resource advantages/background, but holding platform companies have valuation discounts in secondary market.
Different business models lead to different valuation logic. But Sinopharm/SH Pharma/CRP all enjoy SOE background dividends+valuation system with Chinese characteristics. If investors mainly focus on industry trend, they can all be invested.  


China Resources Pharmaceutical (3320.HK) - Growth Recovery and SOE Advantages Improve the Outlook

Shanghai Pharmaceuticals Holding / Equity Bottom-Up

Shanghai Pharmaceuticals Holding (601607 CH)

<ul>
<li>Different from peers whose pharmaceutical assets are scattered in different listed companies, all assets/resources of SH Pharma are integrated within the Company. The intrinsic value of this model is greater.</li>
<li>SH Pharma is in a traditional industry, facing weak profitability and negative policy impacts, Thus, the Company lacks attractiveness and imagination space for investors, leading to long-term undervaluation. </li>
<li>Considering the transformation to more high-margin businesses, SH Pharma’s performance/profitability would improve. Since China hopes to establish a valuation system with Chinese characteristics, there’s valuation repair opportunity for SH Pharma.</li>
</ul>


Different from peers whose pharmaceutical assets are scattered in different listed companies, all assets/resources of SH Pharma are integrated within the Company. The intrinsic value of this model is greater.
SH Pharma is in a traditional industry, facing weak profitability and negative policy impacts, Thus, the Company lacks attractiveness and imagination space for investors, leading to long-term undervaluation. 
Considering the transformation to more high-margin businesses, SH Pharma’s performance/profitability would improve. Since China hopes to establish a valuation system with Chinese characteristics, there’s valuation repair opportunity for SH Pharma.


Shanghai Pharmaceuticals Holding (601607.CH/2607.HK) - The Situation of Undervaluation Would Change

<ul>
<li>The margins of pharmaceutical circulation B2B business is low. If there’s not enough incremental space of terminal customers, the simple B2B trading model is difficult to form a leapfrog growth.</li>
<li>Based on YSB’s business model, if terminal customers choose to use other platforms like JD Health/Alibaba Health, etc., YSB would face the risk of losing upstream and downstream users.</li>
<li>So far, we haven’t seen that YSB has established core competitiveness or moat to secure the terminal customers pool, casting doubts on its business model, investment logic and outlook.</li>
</ul>


The margins of pharmaceutical circulation B2B business is low. If there’s not enough incremental space of terminal customers, the simple B2B trading model is difficult to form a leapfrog growth.
Based on YSB’s business model, if terminal customers choose to use other platforms like JD Health/Alibaba Health, etc., YSB would face the risk of losing upstream and downstream users.
So far, we haven’t seen that YSB has established core competitiveness or moat to secure the terminal customers pool, casting doubts on its business model, investment logic and outlook.


Pre-IPO YSB Inc (YSB.HK) - The Business Model Is Facing Challenges

Hong Kong

China Resources Pharmaceutical Group is an integrated pharmaceutical company engaged in the research and development, manufacture, distribution, and retail of pharmaceutical and healthcare products. Its offerings include chemical drugs, traditional Chinese medicine, biological drugs, and nutritional products, covering various therapeutic areas. The company also provides warehousing, logistics, and supply chain solutions. It was formally established in 2007 and is headquartered in Hong Kong.

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China Resources Pharmaceutical Group (3320 HK)

Pre-IPO Deshengtang Pharmaceutical - Benign Development Momentum, but Still Face Some Risks

Deshengtang has hope for an early turnaround if benign development momentum could continue. But its business model does not have a high moat, so...

Xinyao (Criss) Wang

Pre IPO YSB Inc (PHIP Updates) - Low Margins Are Inevitable; Valuation Upside Potential Is Limited

YSB's business doesn't have high moat.It mainly compete for the small market not covered by SOE pharmaceutical distributors,with limited growth...

Xinyao (Criss) Wang

China Resources Pharmaceutical (3320.HK) - Growth Recovery and SOE Advantages Improve the Outlook

China Resources Pharmaceutical is expected to achieve double-digit growth in 2023. Its SOE resource advantage/background are in line with China's...

Xinyao (Criss) Wang

Shanghai Pharmaceuticals Holding (601607.CH/2607.HK) - The Situation of Undervaluation Would Change

SH Pharma is not attractive due to low profitability/negative policies, but its business transformation will pay off. Since China hopes to drive up...

Xinyao (Criss) Wang

Pre-IPO YSB Inc (YSB.HK) - The Business Model Is Facing Challenges

Terminal customers are key resources for YSB’s all businesses, but YSB hasn't built core competitiveness/moat to secure terminal customer pool....

Xinyao (Criss) Wang

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