Chen Guangjing

Edit Siyuan

Kangmei PharmaceuticalThe situation is not beautiful.

On October 17, Kangmei Pharmaceutical, which has been performing stably, has collapsed in an intraday market, evaporating 10 billion a day and directly falling out of the “100 Billion Club”.

Behind the plunge, news about the bribery of the chairman of Kangmei Pharmaceutical, the manipulation of stock prices, financial fraud, the company's high-leverage equity pledge, excessive inventory or business problems have heated up in public opinion.

On October 22, Kangmei Pharmaceutical released a huge amount of open limit on the board in a short period of time. Although the third-quarter performance statement was released, the revenue growth rate was 35.46% and the net profit of 24.05% increased the morale, but the market value evaporated by nearly 40 billion yuan.

In the crisis, Kangmei Pharmaceutical has a net asset of 34.7 billion yuan and 124 subsidiaries. It is a 2000 global enterprise and a top 500 Chinese company. The main business of Chinese herbal medicines is in the leading position in the industry, ranking first in terms of production and sales. Before the "black swan" in mid-October, Kangmei Pharmaceutical has always been the "darling" of the investment market.

Why does Kangmei Pharmaceutical fall into the question of “financial fraud”, what kind of chess is behind the rapid expansion?

Rooted Chinese medicine

From an unknown small factory to a market value of 100 billion

"We are still doing the industry, and the internals are not affected." When talking about the state of the enterprise after the crisis, the relevant person in charge of Kangmei Pharmaceutical told the city.

Kangmei Pharmaceutical's commercial map is very large, and its business scope has covered the entire industrial chain of Chinese medicine.

These include upstream Chinese herbal medicine planting and resource integration; mid-stream professional market management, Chinese herbal medicine trade, Chinese medicine decoction pieces, Chinese patent medicine preparations, health foods, chemical drugs and medical equipment production and sales, modern pharmaceutical logistics systems, etc.; Medical institution resources, smart pharmacies, smart medicine cabinets, OTC retail, chain pharmacies, direct sales, medical e-commerce, mobile medical, etc.

Time returned 21 years ago.

In 1997, in a remote town in eastern Guangdong, the 28-year-old Ma Xingtian and his wife Xu Dongyu founded the first pot of gold earned by “Going to the Sea” and founded Guangdong Kangmei Pharmaceutical Co., Ltd. This is a small factory that produces chemical drugs (the main ingredients can be directly written in chemical formula), the main products are Luo Xinping, Nosha, and Tetra Pak. At the time, these products were not the development engine of the company, but after many years, the sales of the three products accounted for more than 10% of the total revenue of Kangmei Pharmaceutical.

Kangmei, who started with chemical medicine, entered the Chinese medicine field because of several "accidental" incidents.

In August 1998, the State Food and Drug Administration was established and set off a storm of rectification in the field of drug production and circulation. The centralized bidding procurement policies led by price cuts in various places are also beginning to sprout. These pairsPharmaceutical industryIn particular, sales of chemical drugs have had an impact. Kang Mei, who was also affected, began to make a transformation.

In 2002, Kangmei invested in the production base of traditional Chinese medicine decoction pieces with the unique Chinese medicine resources and talent conditions of Puning, and increased the business of Chinese medicine and medical equipment.

According to public reports, thanks to an internal reform of the Guangdong Provincial Hospital of Traditional Chinese Medicine, plus the old Chinese medicine practitioners were dissatisfied with the quality of the medicinal materials, the hospital leadership decided to hand over the pharmacy to a third party.

Kangmei Pharmaceutical is the first in the country to introduce small packaged pieces in combination with clinical needs. China's traditional Chinese medicine decoction piece market has always had problems such as small, scattered, chaotic, and fraud. Although this piece of decoction has also been criticized by Chinese pharmacists, it has quickly gained recognition for its healthier, convenient transportation and storage.

In 2003, Kangmei Pharmaceutical's Chinese medicine decoction pieces revenue was 65,397,300 yuan, accounting for 14.08% of the total revenue, which was more than three times the total income in 2002 - 20,699,300 yuan. In 2004, the revenue of traditional Chinese medicine decoction accounted for 28.74% of the total revenue, far exceeding the three major chemical products - Luo Xinping 10.52%, Nossa 13.95%, Tetra Pak 13.61%.

By 2012, the income of Kangmei Pharmaceutical Chinese Medicine (including Chinese Herbal Pieces and Chinese Herbal Medicine) has reached 8.703 billion yuan, accounting for 77.95% of the total revenue. At the same time, Kangmei Pharmaceutical takes the marketing, logistics, information and research and development as the core, and the three-dimensional business model of the whole industry chain of traditional Chinese medicine, which runs through key links such as planting, circulation, market network, production and sales terminals, has taken initial shape, and its performance has also achieved leap-forward growth.

The book shows that from 2006 to 2012, the revenue has increased by more than 30%. In 2011, the growth rate in 2012 was as high as 83.77% and 83.62%. In 2012, Kangmei Pharmaceutical broke the revenue threshold of 10 billion.

Three years later (2015), China became the world's second largest pharmaceutical market. With the development momentum of the domestic pharmaceutical industry, Kangmei Pharmaceutical jumped into the 100 billion market value club.

Respond to question

Behind the "financial fraud" is the layout of the industry?

"Financial fraud" is the "black swan" that caused Kangmei to be in danger. "High cash in cash, high deposits and loans, high pledge of stocks of major shareholders and high gross profit margin of Chinese herbal medicines trade" are all reasons for questioning.

In particular, the annual report of Kangmei Pharmaceutical Co., Ltd., at the end of the period, has 39.728 billion yuan in cash and cash equivalents on the books, and there are huge debts, and the interest on debt is as high as 1.5 billion yuan. The skeptics pointed out that there is irrationality as to why there is sufficient cash but willing to pay such high interest loans.

The large-scale lending of Kangmei Pharmaceutical has already begun to take shape at the beginning of the transfer to the Chinese medicine industry.

At that time, Kangmei Pharmaceutical did not form a commercial empire, and its main source of income was still very simple, focusing on several chemical products. As a result of investing nearly 100 million yuan to build a Chinese medicine base, the net increase in cash and cash equivalents in its financial status and revenue analysis table has also seen a “deficit” of more than 90 million yuan.

The relevant person in charge of Kangmei Pharmaceutical said to the city boundary that the reason why there is money on the book is not used, mainly based on the development strategy of the enterprise. "Because of the layout of the pharmaceutical industry, it is necessary to make good financial reserves according to the local conditions and the dynamic adjustment of the national policy. It is necessary to adjust the industrial layout at any time and place, or to deal with the 'two-vote system', etc. 'There is no need to worry about the hand.' Because there is money for the project, or what happens, it is too late to raise funds."

This is consistent with the “Clarification of Media Reports” published by Kangmei Pharmaceutical on October 18.

"This business person, when you think about it, understands that as long as you can borrow, you must try not to use the funds." The person in charge said.

It should be noted that many of the projects listed by Kangmei Pharmaceutical are not profitable in the short term. In response to the city boundary, Kangmei said: "Many projects are not in the interests, and we hope to promote industry standardization and standardization."

First-hand capital, first-hand market, Kangmei Pharmaceutical is a big game.

An industry insider told the city: "Commerce has launched so many projects in the country, these are long-term investment, and the return on investment is slow, not worth the candle. But Kangmei should focus on other opportunities brought by the 'big project', such as Pharmaceutical circulation, sales or other investment targets, etc."

Under the current medical system, drugs must go through the centralized bidding and procurement process from the pharmaceutical factory to the clinic. In this process, government departments and medical institutions occupy a strong position. The core goal of Kangmei Pharmaceutical is to establish a good image and gain the trust of the government and hospitals to promote the development of its main business.

Kangmei Pharmaceutical attaches great importance to government relations. Its internal staff revealed that in the process of discussing cooperation with the government, Chairman Ma Xingtian has always been personally involved. These efforts have made Kangmei Pharmaceutical's main business income and strategic layout have excellent performance. The drawback is that it has repeatedly appeared on the list of cases involving local officials.

such as:

On May 29th, the Chinese referee website announced that Cai Ming accepts bribes and the criminal judgment of the first-instance of unclear sources of huge assets. From August 2014 to November 2015, he was the former director of the Drug Safety Production Supervision Department of the Guangdong Food and Drug Administration. Cai Ming used the convenience of his position to seek benefits for Kangmei Pharmaceutical. He received three times of cash from the general manager of Kangmei Pharmaceutical, Ma and deputy general manager Li, for a total of HK$300,000. According to CCTV news reports, from 2000 to 2012, Kangmei Pharmaceutical applied for public offering of stocks or listings for rent-seeking, and issued a director of the issuance and review department of the China Securities Regulatory Commission.gemLi Quan, deputy director of the issuance supervision department. According to China Economic Net, from 2004 to 2011, Ma Xingtian, chairman and general manager of Kangmei Pharmaceutical, once bribed Chen Hongping, secretary of the Jieyang Municipal Party Committee, for a total of HK$5 million. According to the First Financial Report, from 2000 to 2014, Ma Xingtian bribed the former secretary of the Guangdong Provincial Party Committee and the former secretary of the Guangzhou Municipal Party Committee, Wan Qingliang, involving an amount of HK$2 million and RMB 600,000.

However, the court found that there was no relevant evidence to prove that the bribers sought illegitimate interests, so Kangmei Pharmaceutical was not implicated.

Financing dilemma

High leverage pledge in order to survive?

Kangmei especially needs money.

A clarification announcement on October 18 showed that Kangmei Pharmaceutical also has 22 government cooperation, smart pharmacies, hospital mergers and acquisitions, etc. under construction or proposed. In addition to projects that were previously built but are not profitable in the short term, funds need to be continuously added.

In the above clarification announcement, Kangmei Pharmaceutical clearly stated that according to the announced project investment plan, the company's estimated investment demand for the project in the next few years is 44.391 billion yuan.

In the case of a large balance of book currency funds, Kangmei Pharmaceutical also said that as a private enterprise, the traditional financing channels are relatively simple, and the long-term financing of banks is extremely difficult, and some of the company's investment projects are large in scale and recycling. For a longer period of time, in order to protect the needs of future business development, the company must constantly maintain the pace of financing and maintain a long-term stable strategic partnership with financial institutions.

The relevant person in charge of Kangmei Pharmaceutical told the city: “If you don’t go up, don’t look for new growth points and make a good reserve, you will be surpassed. But to finance, private enterprises are not only listed, but equity pledge, no other.”

This may be the reason why Kangmei Pharmaceutical chose high-leverage equity pledge, but it is tantamount to drinking and quenching thirst.

According to public information, as of June 30, 2018, the major shareholder Kangmei Industrial has pledged 91.91% of the shares of Kangmei Pharmaceutical, mainly for daily business operations, participation in allotment, overweight, subscription of non-public shares of the company, and long-term participation in the company. Equity investment and other businesses.

Such a high leverage, in the case of a sharp fall in stock prices, has caused Kangmei Industrial's pledged equity to face the risk of being forced to liquidate, threatening the actual control of the major shareholder.

In this regard, Ma Xingtian once said that the pledge will not appear. In response to the market, Kangmei Pharmaceutical also said that it will gradually de-leverage, but it depends on the funding of major shareholders. "Survival and development are the first after all," he said.

Kangmei Pharmaceutical’s game has not stopped, and market confidence is still recovering.