Huadong Pharmaceutical (000963.SZ) has officially entered the era of 40 billion dollars in revenue.

On April 18, 2023 Huadong Pharmaceutical released financial reports showing that current revenue and net profit to mother were 40.624 billion yuan and 2,839 billion yuan respectively, up 7.71% and 13.59% year-on-year respectively.

After the performance reached a new high, Huadong Pharmaceutical delivered a huge dividend. It plans to distribute 1,018 billion yuan in cash dividends to all shareholders, accounting for 35.86% of the current net profit to mother, which is more than 15 percentage points higher than in 2022.

However, as the scale of revenue expands, maintaining the growth rate may be becoming a difficult task.

Looking at a single quarter, Huadong Pharmaceutical's revenue in the fourth quarter of 2023 was 10.229 billion yuan, up 3.79% year on year, down 10.34 percentage points from the same period in 2022.

As one of the most interesting businesses under Huadong Pharmaceutical, Medical Aesthetics generated revenue of 2,447 billion yuan in 2023, a year-on-year growth rate of 27.79%, a decrease of 63.32 percentage points from 2022.

In 2024, the market continues to pay attention to how Huadong Pharmaceutical can maintain its performance growth rate.

Over 1 billion dividends

Last year, Huadong Pharmaceutical's revenue scale finally reached a new level.

According to the annual report, Huadong Pharmaceutical's current revenue and net profit to mother were 40.624 billion yuan and 2,839 billion yuan respectively, up 7.71% and 13.59% year-on-year respectively.

This revenue scale is also the best report card Huadong Pharmaceutical has handed over since it went public.

“During the reporting period, the company's performance achieved contrarian growth in a complex and difficult environment, and continued to maintain a steady, moderate and positive development trend. The four major business segments of the pharmaceutical industry, pharmaceutical commerce, medical aesthetics, and industrial microbiology worked together to push the company's revenue and profit to the best level in history, fully achieved the annual business goals, and achieved particularly difficult development results.” Huadong Pharmaceutical said.

Based on this, Huadong Pharmaceutical paid a huge dividend.

According to the profit distribution plan, Huadong Pharmaceutical plans to distribute a cash dividend of 0.58 yuan/share to all shareholders based on 1,754 billion shares. The total dividend amount reached 1,018 billion yuan, accounting for 35.86% of the current net profit, which is 15.49 percentage points higher than in 2022 — Huadong Pharmaceutical's annual dividend amount in 2022 was 509 million yuan, accounting for 20.37% of the net profit for the period.

With an increase in the scale of performance combined with “generous” dividends, Huadong Pharmaceutical closed with a 4.89% increase on April 18.

Regarding the business situation, as the revenue pillar of Huadong Pharmaceutical, the commercial sector covering pharmaceutical wholesale, retail, and cold chain generated revenue of 26.981 billion yuan in 2023, up 5.59% year on year, and 4.96 percentage points slower than 2022.

However, the profitability of the business increased. Net profit of 431 million yuan was achieved during the same period, up 8.74% year on year, and the growth rate increased 4.88 percentage points from 2022.

“Actively build product pipelines, cultivate promotion teams, continuously expand agency business, and complete the upgrade transformation from account opening and volume to stable scale. It focuses on specialty pharmaceutical devices and continuously improves profitability through a diverse pipeline of agents.” Huadong Pharmaceutical pointed out.

At the same time, in order to further consolidate its position in the pharmaceutical distribution field in Zhejiang Province, Huadong Pharmaceutical successively acquired the control rights of Huadong Pharmaceutical Dongyang Co., Ltd. (hereinafter referred to as “Pharmaceutical Dongyang”), Hangzhou Huayi Pharmacy Co., Ltd., and Zhejiang Yiqun Biopharmaceutical Trading Co., Ltd. in 2023.

Looking at the current performance situation, the scale of these three companies is still relatively limited; only Dongyang Pharmaceutical's revenue has exceeded 100 million. Revenue and net profit for 2023 were 384 million yuan and 0.05 billion yuan respectively.

However, the commercial business has the characteristics of “large scale and low profit”, and the “pharmaceutical industry” sector, which has actually carried the big profit banner of Huadong Pharmaceutical, has achieved a certain amount of growth.

In 2023, the revenue and net profit of Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd., the subsidiary responsible for the pharmaceutical industry sector, reached 12.217 billion yuan and 2,330 billion yuan respectively in 2023, up 9.45 percent and 9.63% year-on-year respectively.

The market is looking forward to nothing more than Huadong Pharmaceutical's liraglutide sales.

In July 2023, the marketing application for liraglutide for weight loss was approved by the Drug Administration. This is the first domestically produced GLP-1 diet drug approved for marketing in China. However, Huadong Pharmaceutical did not disclose the specific sales situation of liraglutide in its annual report. It only stated at an investor conference call in January of this year that it had completed admission to more than 1,000 hospitals and coverage of 20,000 single pharmacies with terminals.

Based on the short time liraglutide was released, it may be possible to obtain a certain amount in the early stages, but there is no room for optimism in the long run.

As the original research manufacturer of this drug, the 2023 financial report disclosed by Novo Nordisk (NVO.N) shows that the total sales volume of Victoza (liraglutide) in the Chinese market was RMB 1,299 billion, down 15.02% from the previous year.

“As the GLP-1 market moved to weekly and tablet-based treatments, Victoza sales declined by 30% in Danish kroner (global sales).” Novo Nordisk explained.

However, Huadong Pharmaceutical does have a backseat in GLP-1 drugs, and it is currently rare for domestic pharmaceutical companies to bet on multi-target pipelines.

Huadong Pharmaceutical has not only deployed the short-acting GLP-1 drug liraglutide, but also the long-acting GLP-1 drug simeglutide, HDM1005, a GLP-1R/GIPR dual target, and DR10624, which has the three targets of FGF21R/GCGR/GLP-1R.

Among them, simeglutide has already entered phase 3 clinical trials.

Although many domestic pharmaceutical companies are working hard on GLP-1 drugs, I have to admit that Huadong Pharmaceutical's overall product line layout is indeed quite complete.

Furthermore, Hangzhou Jiuyuan Gene Engineering Co., Ltd. (hereinafter referred to as “Jiuyuan Gene”), a biosimilar drug developed by Huadong Pharmaceutical and the equity owner of its liraglutide, was accepted by the Drug Administration in April this year. The indication is type 2 diabetes.

Currently, Huadong Pharmaceutical still indirectly holds 21.06% of Jiuyuan Gene's shares. The latter just submitted a listing application to the Hong Kong Stock Exchange at the beginning of this year.

The market is waiting to see if Huadong Pharmaceutical, which is betting more on, can break through the fierce GLP-1 circuit.

Slowing growth

There has been a major breakthrough in revenue scale, but the slowdown in growth is also a current situation facing Huadong Pharmaceutical.

Excluding the data for the first three quarters, revenue and net profit to mother for the fourth quarter of 2023 were 10.229 billion yuan and 650 million yuan respectively. Of these, revenue increased 3.79% year over year, down 10.34 percentage points from the same period in 2022.

As another highlight of Huadong Pharmaceutical's performance, the medical and aesthetic business has also shown a weak trend.

In 2023, Huadong Pharmaceutical's medical and aesthetic business, which covers optoelectronic and injectable projects, generated revenue of 2,447 billion yuan.

“The company's overall medical and aesthetic sector continued to grow rapidly during the reporting period, and revenue reached the highest level in history.” Huadong Pharmaceutical pointed out, “The overall profitability of the medical and aesthetic sector and its contribution to the company's overall net profit have steadily increased.”

Even so, it is a fact that the growth rate of the medical and aesthetic business in East China has slowed sharply. The year-on-year revenue growth rate in 2023 was only 27.79%, down 63.32 percentage points from 2022.

Although there is an overall trend of downgrading consumption in the market, there are also medical and aesthetic companies that have gone against the wind. In 2023, Aimeike (300896.SZ)'s revenue and net profit to mother were 2,869 billion yuan and 1,858 billion yuan respectively, up 47.99% and 47.08% year-on-year respectively.

Specifically, as Huadong Pharmaceutical's global medical and aesthetic business operation platform, the wholly-owned subsidiary Sinclair in the UK generated revenue of 1,304 billion yuan in 2023, an increase of 14.49% over the previous year, achieving the first profit since the acquisition. However, Sinclair's revenue growth rate in 2023 was 62.41 percentage points slower than in 2022.

Whether Sinclair can continue its growth trend remains to be seen.

As of the end of December 2023, the original goodwill book value formed by Huadong Pharmaceutical's acquisition of Sinclair still reached 1,415 billion yuan.

Despite limited growth in foreign markets, domestic market performance is still impressive. Xinkley Aesthetics, a wholly-owned subsidiary responsible for the medical and aesthetic business of Huadong Pharmaceutical, achieved revenue of 1,051 billion yuan in 2023, an increase of 67.83% over the previous year.

This is probably inseparable from the continuous dosage of the core product, the injectable polycaprolactone microsphere facial filler.

Currently, Huadong Pharmaceutical continues to upgrade Yi Yeon Shi. In March 2023, all subjects of I-YANSHI M completed clinical trials in China were enrolled. According to public information, compared to E-Yeon-si, which is currently on the market, E-Yeon-si M-type can provide a longer maintenance period.

We still need to observe how Huadong Pharmaceutical, which has relied on “buy buy buy” along the way, “preserve the river and mountains.”