In July 2020, Jin Dawei's stock price soared to the sky because of “NMN,” a magic drug for aging. The monthly increase was as high as 125%, and the stock price reached a record high. However, over the next 3 years, the company's stock price fell by nearly 60% and fell below the issue price, which made people doubt its future.

Recently, following the strong boom in new productivity such as AI and the low-altitude economy, synthetic biology, which is one of the branches of new quality productivity, has also ushered in a strong rotation. Jin Dawei's stock price seems to have stopped falling and rebounded by nearly 30% in less than a month.

Looking back at the company's stock price history, it seems that the hype about emerging concepts is driving the stock price even more than the growth in fundamental performance. Currently, the company has many sexy topics, synthetic biology, longevity medicine, vitamins, medical care, beauty, and pension concepts. Can the company actually rely on these concepts to achieve performance growth?

01 is not speculation; it's just that performance is far from being realized

The concept of synthetic biology, which is currently popular, was actually born in the 21st century and has been in development for a long time.

This technology, known as the “third biotechnological revolution,” is said to be able to use all kinds of engineered organisms (such as various bacteria) to produce all kinds of things we want, representing a new production method and huge room for imagination.

McKinsey predicts that 70% of the world's products can be produced biologically in the future, including most of the products we can access in our daily lives.

According to agency forecasts, this is an industrial circuit with a global market size of at least 100 billion. From 2021 to 2026, the global synthetic biology market will grow from 9.5 billion US dollars to 30.7 billion US dollars, and the CAGR will reach 26.5%.

Compared to the trillion-dollar space of the low-altitude economy, although the market space for synthetic organisms is not very large, the high growth rate indicates a prosperous future for the industry.

But in fact, synthetic biology was popular in the capital market for several years. In 2021, when fund-raising was poor and investment was slowing down, the popularity of investment in the primary market synthetic biology circuit increased unabated. In 2022, more than 50 domestic synthetic biology companies announced that they had completed financing, and almost all leading investment institutions such as Gaoxi, Sequoia, Jingwei, Fengrui Capital, and Lightspeed China entered the market.

In the secondary market, from US stocks to A-shares, synthetic biology has also experienced a full year of fun.

This time it is once again popular, also because the 2024 Government Work Report and the Central Economic Work Conference focused on biomanuring as a new quality of productivity.

However, just a few years have passed, and several major US synthetic biology companies have seen a different story. The market value of the technology company Ginkgo fell to the top, and Zymergen, a leading product company, experienced the failure of its first commercial product, and was eventually acquired at a low price. Amyris, the son of synthetic biology of choice in 2023, applied for bankruptcy and restructuring...

The capital market is popular, causing many companies to set up. At the end of 2022, Jin Dawei announced that it would increase investment in biological enzymes and synthetic biotechnology, plan to optimize raw materials products through synthetic biotechnology, improve quality and reduce costs, and at the same time launch new products based on synthetic biology.

At the end of 2023, Jin Dawei once again launched a convertible bond financing plan with a capital raising amount of 1.82 billion dollars, focusing on promoting synthetic biological manufacturing projects.

The company clearly stated that its investment priorities include construction projects with an annual output of 10,000 tons of calcium pantothenate and 30,000 tons of aloxone sugar and 5,000 tons of inositol. This is a product line expansion using the company's accumulated experience in synthetic biotechnology and bioenzymatic catalytic production.

Each of these products can be compared to the authentic concept stocks of synthetic biology, Huaheng Biotech and Bailong Chuangyuan.

Furthermore, the synthetic biology industry chain is long, covering upstream underlying technology, midstream platform companies, and downstream product companies. Using synthetic biotechnology, it is possible to produce products in various fields such as fine chemicals, food, medicine, aesthetics, and pharmaceuticals.

In December 2023, investors asked about Jin Dawei's investment and output in synthetic biology. Instead, the company did not provide quantitative indicators, but instead responded to the company's continuous investment in biological enzymes and synthetic biotechnology over the years, and is committed to the construction of smart factories and innovation in process technology to achieve green, low-carbon, and low-cost production.

In February 2024, Jin Dawei further emphasized that the company not only possesses key technologies in synthetic biology, but also has a platform for large-scale production of biocoals banks, and has successfully industrialized and created a rich variety of industry products.

On April 20, Jin Dawei issued a patent called “a method for synthesizing L-carnosine catalyzed by biological enzymes”.

The above confirms that Jin Dawei is not just a concept stock, but emphasizes that it has both technology and platform and product capabilities, which needs to be examined.

Moreover, judging from the entire industry cycle, synthetic biology is still in the early stages of development. It takes at least 5 years from product selection to mass production. Combined with the experiences and lessons of several major US synthetic biology companies, it is proved that even if companies in the synthetic biology field have a layout, they cannot develop smoothly.

However, this did not affect the stock price of Jin Dawei, which rose by nearly 30% in less than a month, and some have already exceeded the stock price of pledged shares.

02 If performance is poor, mergers and acquisitions; one move is rarely a path dependency

In addition to synthetic organisms, Jin Dawei also has a wide range of businesses, including vitamins, coenzymes, health products, NMN, pharmaceutical raw materials, etc., and has invested in more than 20 foreign companies and 7 goodwill assets.

On the basis of vitamin A and coenzyme Q10, the health products and pharmaceutical ingredients business was gradually expanded through the buy-buy-buy model. Prior to entering the health products business, Jin Dawei's main products were mainly vitamin A, vitamin D3, and coenzyme Q10, and had a high market position. It was one of the world's largest Coenzyme Q10 manufacturers, the largest domestic Coenzyme Q10 exporter, one of the top three VD3 manufacturers in the world, and one of the six VA manufacturers in the world.

Among them, vitamin A series and coenzyme Q10 form the company's main source of profit, but since vitamins are cyclical varieties and are greatly affected by the supply side, the gross profit contribution from year to year is not stable, resulting in the alternation of vitamin A series and coenzyme Q10 as the main source of the company's annual performance.

1. Mergers and acquisitions of health product assets

In order to reduce fluctuations in performance due to cyclical varieties, Jin Dawei turned its attention to the health products business with consumer attributes, and successively acquired health product production, sales, and channel companies in 2015-2018.

In 2015, Jin Dawei spent 206 million yuan to acquire 51% of the shares in the health products sales company Doctor's Best (“DRB”), and continued to increase its holdings to 97.51% in 2016;

In the same year, it also used 654 million dollars to acquire the operating assets of health products manufacturer Vitatech (“VB”) through fixed increases;

In 2018, the company spent 509 million dollars to acquire all of the shares in Zipfizz, an American sports drink brand functional drink sales company, and also invested 4.8% of the global health product e-commerce giant iHerb with 100 million US dollars.

After adding the health products business, in 2016, Jin Dawei's performance bottomed out and rebounded, and the merger and acquisition achieved immediate results. By continuously incorporating health product assets into the package, the revenue scale of the company's health products business also grew from 321 million in 2015 to 1,687 million in 2019, and replacing vitamin A and coenzyme Q10 became the company's largest source of revenue.

However, like health product counterpart Tomson Beijian, in 2019, Jin Dawei also depreciated the total goodwill value of assets purchased overseas. The health products manufacturer VB had a total original goodwill value of 486 million yuan. In that year, there was a loss of goodwill of 274 million yuan. In the same year, the price of the supercompany's vitamin products also began to decline, causing the company's core operating profit to be directly cut in half.

Fortunately, the company's original Coenzyme Q10 products saw a sharp rise in volume and price in the next two years. The gross margin increased sharply by more than 27 percentage points compared to '19, and the company's performance once again rebounded.

2. Mergers and acquisitions of pharmaceutical raw materials assets

However, at this time, the company's vitamin products have been falling rapidly in volume and price since 2021, and the gross margin performance of coenzyme products has also fluctuated greatly, causing the company a strong sense of insecurity. As a result, the company has once again begun to acquire new businesses to expand new profit growth points.

In December 2020, the company acquired 86% of Chengxin Pharmaceutical's shares and completed the merger in 2021. In that year, it added a new pharmaceutical product (raw materials) business, and also brought 144 million in goodwill.

However, this pharmaceutical raw materials business not only did not save the company's declining performance, but on the contrary, increased the company's losses.

From 2021 to 2022, net profit of Chengxin Pharmaceutical decreased 565.53% year-on-year due to lower business performance and lower prices and sales volume of major products. The company successively accrued goodwill impairment of 38 million and 106 million yuan. At this point, it was only in 2021 that Chengxin Pharmaceutical was fully integrated into the consolidated statement, and all 144 million goodwill depreciation was completed.

3. Gross profit of vitamin and coenzyme products declined sharply

As can be seen from the chart above, Jin Dawei's overall revenue scale has increased, but its core operating profit has hit a new low. The past two years seem to have been losing money.

Judging from the company's revenue composition, the company's health products have always maintained a growth trend, and revenue growth is relatively rapid; the revenue scale of Coenzyme Q10 products has increased, but the increase is extremely low. The revenue scale has remained steady in the last four years; Vitamin A series products have experienced parabolic growth and decline. The revenue scale grew from 220 million in 2015 to 900 million in 2018, and fell back to 214 million in 2023, with the greatest fluctuation;

Judging from changes in gross margin, the gross margin performance of vitamin A series products is the most unstable. The gross margin at the highest point can reach 80%, but the gross margin at the lowest point can drop to -3.9%, falling into operating losses. Zhejiang Pharmaceutical and Xinhecheng, which also have a vitamin A business, can still maintain profits, and the scale advantage is not obvious.

The gross margin fluctuation of coenzyme products is the second largest. Although overall gross margin has increased compared to 19 years ago, gross margin has also dropped sharply by nearly 20 percentage points in the past two years.

The gross margin of only the acquired health products business was relatively stable, remaining at 33% all year round, but compared to Tomson Beijian in the same industry, its gross margin was only half that of the latter, highlighting the relatively poor market competitiveness of the products.

4. NMN subclimate

However, in July 2020, it became popular in the capital market, and as a growing point receiving much attention in the health products market — NMN Pharmaceutical also seems to have experienced ups and downs from explosion to gas, riding a roller coaster.

In 2020, the new product NMN launched by Jin Dawei was very popular in the market. The sales volume reached 58,267 bottles in that year, bringing the company 65 million in revenue.

Based on the optimistic outlook for NMN, in 2021, Jin Dawei proposed to bring “Coenzyme Q10” and “NMN” to the market as the company's core single products, and expanded production capacity by 500 tons, but in the next few years, NMN's specific revenue data could not be found in financial reports. From 2021 to 2022, DRB's net profit declined, and in 2023, DRB's performance recovered. However, the company said that the NMN market is in frequent chaos, product quality is uneven, and the entire industry is in urgent need of standardized management.

In fact, this magic medicine, which was once popular with consumers, has not yet obtained licenses for pharmaceuticals, health foods, food additives, and new food ingredients in our country. China's National Health Commission, the US FDA, etc. have also experienced a state of tightening of approval. In e-commerce platforms, the bottled prices of NMN products from several common brands have dropped from tens of thousands of yuan to about 1,000 yuan.

Market analysts pointed out that the development of the NMN market is still full of uncertainty.

In summary, although the revenue scale of the health products business grew rapidly, replacing the original vitamin A and coenzyme Q10, and became the business with the largest share of revenue, due to poor gross margin performance, it was unable to make up for the negative impact caused by large fluctuations in gross margin of the two major products with high gross margins, and has never carried the flag in terms of performance contribution.

However, the company once again tried to boost its performance by acquiring and arranging the API business. As a result, not only was there no contribution, but only harm.

In 2022 and 2023, the company's performance reached a new low due to a sharp decline in gross margins of vitamin A and coenzyme Q10 products.

5. Acquire again and increase health products business

Faced with the same situation, Jin Dawei once again initiated mergers and acquisitions to increase the layout of the health products industry.

In February 2024, Jin Dawei announced that its holding subsidiary DRB would acquire 100% of Activ's shares at a cash consideration of US$17.2 million (approximately RMB 124 million). Activ is a well-known brand in the US calcium chewable supplement category. It mainly deals in Viactiv series products such as bone health, immune health, and other dietary nutritional supplement chewables.

According to the acquisition report, Activ was in an insolvent situation prior to the acquisition. At the end of 2022 and the end of September 2023, its total assets were US$6.772 million and US$8.1780 million, respectively, with net assets of -20.991 million US dollars and -19391 million US dollars. In the first three quarters of 2022 and 2023, net profit was -9.966 million US dollars and 1.601 million US dollars, respectively, which just turned a loss into a profit.

Faced with more failures than successful acquisitions in the past, can we reverse our performance once again by taking another step this time?

03 Performance challenges and concerns

Regarding the resumption of Jindawei's current business, the author believes that Jindaway's short-term performance is mainly affected by the cyclical effects of Vitamin A, followed by Coenzyme Q10. At the same time, we also need to pay attention to the goodwill asset situation in the company's health products business.

The supply of the Coenzyme Q10 market is highly concentrated, and is dominated by China. With a production capacity of 600 tons, Jindaway ranks first in the country with a production capacity of 600 tons. According to data from '21, Jindaway's Coenzyme Q10 production accounts for nearly 30% of the industry, and has the strongest scale and cost advantage. Prices are mainly influenced by the supply side. The trend of manufacturers discontinuing production and expanding production is a key influencing factor;

According to the investor survey report of January '24, the company said that with the sharp increase in consumer concerns about immunity and heart health care, the Coenzyme Q10 market is showing a growing trend;

The vitamin A market also has an oligopoly, and prices are mainly affected by supply. Four companies, DSM, BASF, Xinhecheng (8,000 tons), and Zhejiang Pharmaceutical (5,000 tons), account for nearly 80% of the production capacity of the entire industry, and Jin Dawei is in the second tier with a production capacity of 4,000 tons. Historically, manufacturers stopped production and maintenance, environmental accidents, and disasters were the main factors affecting prices. The price of vitamin A has continued to fall since 2018, and has now fallen to the bottom, less than 1% in history. There is limited room for decline, and once the price rebounds, it brings full performance flexibility to the company.

According to reports, at present, the global operating rate of vitamin A is generally low, and some companies are at a loss, and there is some intention to raise the price. However, it is important to note that Huayuan Biotech's plan to increase the production capacity of vitamin A powder by 6,000 tons may exacerbate the imbalance between supply and demand, causing the price recovery cycle to be quite long.

Judging from the risk diagnosis of the company's financial reports, the biggest concern is probably that the health products business falls short of expectations, leading to operating losses and impairment of goodwill.

The company currently has goodwill assets of 487 million, accounting for 12% of net assets. The largest component is Zipfizz. The main business is the operation and sale of sports drink brands, with a goodwill book value of $322 million. There has been no impairment since the acquisition in '18. Zipfizz's revenue has been growing steadily in the last three years, but net interest rates have declined year by year.

Judging from the assumptions of the company's goodwill impairment tests, the forecast period assumes an average net interest rate of 15.18%, which is slightly optimistic.

Based on the previous situation where VB and Chengxin Pharmaceutical's goodwill were all depreciated, the hidden concerns caused by the impairment of Zipfizz's goodwill are not ruled out.

In summary, performance elasticity mainly depends on vitamin A, followed by coenzymes, and risk depends on the health products business. In addition, the company's advantages in NMN and synthetic biology may have a positive impact on stock prices.