The author is a researcher at the Alpha Workshop.

Lead: Capital entry may be gambled by the expected difference in regulatory processing, the relative integrity of Kangmei's fundamentals, and the value of the platform to local governments.

April 29,Kangmei Pharmaceutical(SH: 600518) broke the wrong accounting of 29.9 billion, and then the stock entered the decline channel.

(Click to enlarge)

It is reasonable to say that such a listed company should be left unattended. However, this is not the case. In the eight trading days after Kangmei’s explosion, the accumulated transaction amount reached 6.08 billion yuan.

The outside world can't help but ask, what is the picture of the funds to buy Kangmei?

In addition to the information already available on the market, what could be missed?

We think there may be several reasons: the regulatory penalties may not be so heavy; the Kangmei fundamentals are relatively complete; the local government may have the meaning to keep it.

01 Expected difference in regulatory penalties

Kangmei’s accounting errors ultimately depend on how to be qualitative. Some investors think that they will withdraw from the market. After the Shanghai Stock Exchange issued an inquiry letter to Kangmei, the stock price has fallen sharply:

On April 30, the "Regulatory Work Letter on Relevant Matters Concerning Correction of Accounting Errors", the next day's limit;

On May 5th, the "Inquiry Letter on Media Reports" went down the next day;

On May 12, the “Review and Enquiry Letter for the 2018 Annual Report” fell to the next day, after the daily limit was opened.

(Click to enlarge)

Until May 13, Kangmei issued the "inquiry letter regarding the extension of the reply to the Shanghai Stock Exchange", which was temporarily unable to respond but the stock price did not fall sharply and remained basically in place.

(Click to enlarge)

The first point of the intention to buy funds is actually the expected deviation. In the case of accounting errors, there are not many cases in which listed companies eventually withdraw from the market. If Kangmei is finally exalted and exempted from delisting, the current price can be said to be a blog:

There were a lot of buys starting on May 10, and the stock price was around 6.4 yuan, which is about a low of nearly 7 years. The book value is 1.12 times.

02 The fundamentals are relatively complete

In terms of the market size of traditional Chinese medicine decoction pieces, it maintains a high growth rate of nearly 20% every year. As a market leader, Kangmei Pharmaceutical has a market share of only 3%, and there is a lot of room for future development.

In terms of management, Kangmei was recognized by the State Administration of Traditional Chinese Medicine. In August 2007, the latter selected 19 third-grade and second-class Chinese medicine hospitals to promote small-package Chinese medicine decoction pieces, and issued several papers or held training courses and symposiums. Vigorously promote small-package Chinese herbal medicine pieces.

In terms of research and development, Kangmei has established cooperative relations with top universities and research institutes such as the Chinese Academy of Sciences, Peking University, Guangzhou University of Traditional Chinese Medicine and the University of Toronto. Relying on the platform advantages of the whole industry chain of Chinese medicine and the "smart +" big health industry system, six expert committees including the Chinese Academy of Sciences and the academicians of the Chinese Academy of Engineering, such as Chen Kezhen and Wang Zhongtuo, have established expert committees.

In terms of the discourse power of the industry chain, according to the upstream of the industry, “Kangmei is the level of the gods in this market”.

These points have enabled Kangmei to gradually grow from a company with tens of millions of revenues to a market leader.

Kangmei takes the decoction piece as the center, deepens the wisdom pharmacy downstream, and explores the Chinese herbal medicine industry upstream. The hospital supply chain extended by the decoction channel will be extended to the government medical project by Chinese herbal medicine. If you ignore the accounting errors, Kangmei's fundamentals are actually relatively complete and differentiated.

03 Kangmei's value to local government

Since 2013, Kangmei has begun to increase cooperation with provincial and municipal governments throughout the country, and has successively collected important national Chinese herbal medicine industrial bases such as Qinghai, Gansu, Jilin, Yunnan and Guizhou.

And fully participate in the development of the local health and pharmaceutical industry, and cooperate in the fields of health big data, smart pharmacy, modern pharmaceutical logistics, and national-level comprehensive health projects.

The value of Kangmei's platform is undoubtedly very large for the locality. It guarantees a large amount of employment and taxation. In the context of tax cuts, such companies may be large and indefinite asset packages.

Above, the possibility of gambling funds may be the expected difference in supervision, the relative integrity of Kangmei, and the value of the platform to local governments.

[Previous high hit report] Click on the picture to read