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Wuhan Huisheng Biological Technology Co., Ltd. (“Huisheng Biological”, 300871.SZ) intends to publicly issue 27.7 million new shares on the Shenzhen Stock Exchange’s Growth Enterprise Market, accounting for no less than 25% of the total share capital after the issuance. Raised funds of 590 million yuan.
Huisheng Biotechnology takes pig drugs as its core, and is mainly engaged in the research and development, production and sales of veterinary drugs, feed and additives. The company has established cooperative relationships with well-known domestic pig companies such as Tianbang, Zhengbang Technology, COFCO Meat, Zhengda Group, New Hope.
However, the operating performance of Huisheng Biotechnology during the reporting period was not impressive. Compared with the companies in the same industry listed in the prospectus, there was a large gap in performance, scale, and business. In addition, there were also large accounts receivable, Risks such as high debt ratio, single business, and very general competitiveness of the company.
I. Industry overview
(Data source: company prospectus)
In recent years, driven by the continuous growth of the global population and its demand for food, the global veterinary drug industry market has grown steadily. According to statistics from the International Federation of Animal Health (IFAH), global sales of veterinary drugs (excluding China) increased from 19.2 billion US dollars to 33.5 billion US dollars, and has shown an overall upward trend in recent years, with a compound annual growth rate of 5.7%.
(Data source: company prospectus)
China’s veterinary drug industry started late, and has grown rapidly with the rapid development of animal husbandry in recent years. According to the statistics of the China Veterinary Drug Association, the sales of China’s veterinary drug industry increased from 13.8 billion yuan to 45.9 billion yuan from 2008 to 2018. The compound annual growth rate is 12.8%. In recent years, the average growth rate of my country’s veterinary drug market has been significantly faster than that of the international veterinary drug market.
There are a large number of veterinary drug companies in my country, but they are mainly micro-enterprises and small and medium-sized enterprises. According to the statistics of the China Association of Veterinary Medicines, as of the end of 2018, there were 1,614 veterinary drug manufacturers nationwide (the number of companies with valid data, excluding Hong Kong, Macau, and Taiwan companies), including 1,515 chemical drug companies and 99 biological products companies Family.
According to the “Veterinary Drug Industry Development Report (2018)” issued by the China Veterinary Drug Association, the annual sales threshold of the top 10 companies in the field of veterinary chemical preparations is 311 million yuan, and The company’s 2018 revenue has reached 422 million yuan Yuan, the scale of sales revenue in the domestic market ranks among the top ten veterinary chemical preparation companies.
The major companies in the industry include Plyco Bioengineering Co., Ltd., Tianjin Ruipu Biotechnology Co., Ltd., China Animal Husbandry Industry Co., Ltd., Qilu Animal Health Products Co., Ltd., and Hebei Yuanzheng Pharmaceutical Co., Ltd.
1. Relationship with upstream industries
The upstream industry of this industry is mainly the API industry, and the price of API directly affects the cost of veterinary chemical preparations. With the transfer of the international chemical API industry, my country has become one of the world’s largest API producers and exporters, with sufficient and stable upstream API supply.
2. Relationship with downstream industries
(Data source: company prospectus)
The veterinary drug industry directly serves the animal husbandry. my country is a big country in the animal husbandry industry, and the animal husbandry industry has developed rapidly in recent years. According to the National Statistical Yearbook, the compound annual growth rate of the total output value of animal husbandry from 2008 to 2018 was 3.49%, showing an overall growth trend. Due to the dual effects of population base and eating habits, China is the world’s largest producer and consumer of pork. From 2008 to 2018, the number of pigs produced in China’s pig breeding industry remained at 600 million to The huge market capacity of 800 million heads provides sufficient market guarantee for the veterinary drug industry.
Second, what are the company’s products?
Huisheng Bio is mainly engaged in the research and development, production and sales of veterinary drugs (including chemical drug preparations, raw materials, and Chinese medicine preparations), feed and additives. The company’s product structure is dominated by veterinary drugs for pigs, and its revenue from veterinary drugs for pigs accounted for more than 90% in both 2017 and 2018.
3. How does the company operate?
(Data source: company prospectus)
Huisheng Biotechnology focuses on pig medicines, and has also expanded in other veterinary medicine fields such as poultry and aquatic products. During the reporting period, the company’s product structure was dominated by veterinary drugs for pigs. In 2017 and 2018, the revenue from veterinary drugs for pigs accounted for more than 90%. In 2019, affected by the African swine fever, the overall sales of the swine veterinary medicine sector declined. At the same time, the company vigorously explored the poultry market, and the income of poultry products increased significantly.
(Data source: company prospectus)
From 2017 to 2019, the operating income of Huisheng Biotechnology was 399 million yuan, 422 million yuan, and 427 million yuan, and the growth in operating income was weak; net profit was 88,409,500 yuan, 71,401,600 yuan, and 68,766,400 yuan, and the net profit was two consecutive times Year down.
(Data source: company prospectus)
During the reporting period, the balance of the company’s accounts receivable continued to grow with the increase in sales revenue. The book value of the accounts receivable at the end of the reporting period was RMB 40,408,300, RMB 77,431,800, and RMB 98,163,200, respectively.
Huisheng Biology and its group customers generally adopt the settlement method of “delivery before payment”, giving major customers a credit period of 3-6 months. At the same time, the poor financial status of Zhengzhou Hezhisheng’s terminal customers at the end of 2018 and 2019 has caused the balance of accounts receivable to increase year by year. The accounts receivable turnover rate dropped from 11.92 in 2017 to 4.87 in 2019, which is significantly lower than the industry average. The continuously falling accounts receivable turnover rate indicates that the company’s operating capacity and capital use efficiency have decreased.
2. The risk of high debt and limited solvency
(Data source: company prospectus)
Compared with comparable listed companies in the same industry, the company’s current ratio and quick ratio are lower, and the debt-to-asset ratio is higher. The company’s short- and long-term debt solvency is low, and there is a certain degree of financial pressure.
3. The risk of the decrease in sales expense rate affecting the company’s product sales
In 2019, the number of large-scale distributors with annual sales of more than 1 million and the revenue share of the company decreased significantly in 2018, resulting in a corresponding reduction in sales personnel required for the distribution model, which led to an increase in related labor costs under the distribution model The rate is smaller than the increase in sales revenue, and the sales expense ratio has declined. The sales expenses were RMB 57,785,800, RMB 46,741,800, and RMB 38,820,800, respectively, and the sales expense ratios were 14.48%, 11.08%, and 9.09%.
From the above performance analysis, it can be seen that the company’s operating income is sluggish, but the company’s sales expenses and sales expense ratios have been declining year by year. The company has not achieved the growth of operating income through sales efforts. Does not conform to traditional business logic.
The reason is to beautify the financial report. The listing mark selected by Huisheng Biological is: the net profit in the last two years has been positive, and the cumulative net profit is not less than 50 million yuan. During the reporting period, Huisheng Biotechnology realized net profits attributable to shareholders of the parent company of RMB 88.42 million, RMB 71.4 million, and RMB 68.77 million. From this perspective, the company is likely to forcibly reduce sales expenses to preserve net profits.
4. Industry barriers are average, and the company lacks core competitive advantages
Due to the low barriers to entry, the industry presents a pattern of disorderly competition. There are a large number of veterinary drug companies, small production scales, low technology content, and single product structure, mainly micro-enterprises and small and medium-sized enterprises. As of the end of 2018, there were a total of 1,614 veterinary drug manufacturers nationwide (the number of companies that reported valid data, excluding Hong Kong, Macau, and Taiwan companies), including 1,515 chemical drug companies and 99 biological product companies. The barriers to entry are not very high and there are many companies in the industry leading to fierce competition. However, Huisheng Biology is not outstanding in the industry, nor does it have a very significant competitive advantage. From the existing data, it can be seen that the company encounters a growth bottleneck when the volume is not large, so it is important for the company’s future development. The potential is difficult to make an optimistic estimate.
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