Key investment points:
Recently, with the release of two special reports, one of the special studies on the traditional Chinese medicine industry – grasping the OTC investment opportunities of traditional Chinese medicine at the current time point and the second special study on the traditional Chinese medicine industry – how to select stocks by traditional Chinese medicine OTC, the traditional Chinese medicine OTC industry has gradually attracted the attention and attention of investors. In this report, we summarize and think about two core concerns of the market for the OTC industry of traditional Chinese medicine: 1) the sustainability of price increase and 2) inventory cycle.
The market is worried that the price increase of traditional Chinese medicine OTC products may not be sustainable, especially the OTC of ordinary brand Chinese patent medicines. We believe that the OTC price increase of traditional Chinese medicine is sustainable under the background of the continuous price increase of upstream traditional Chinese medicine and the pursuit of gross profit by retail pharmacies. On the one hand, according to the data of tiandi.com of Chinese herbal medicines, since the end of 2019, the comprehensive 200 index of Chinese herbal medicine prices has increased by 5.23%, 9.09% and 10.77% respectively in early 2020, early 2021 and early 2022 compared with the same period of the previous year, showing an accelerated growth trend year by year. We believe that with the rise of labor and other costs, the rising trend of traditional Chinese medicine prices is expected to continue. On the other hand, with the continuous promotion of the state’s centralized purchase of chemical drugs, the unit price of chemical drugs sold in retail pharmacies may tend to decline. In order to maintain the overall profit margin, retail pharmacies are also happy to see the price increase of some OTC varieties of traditional Chinese medicine with strong brand strength and high market share. According to our research, the unit price of OTC of traditional Chinese medicine has increased by about 5% – 8% in some chain pharmacies in recent years, which directly verifies the fact that OTC of traditional Chinese medicine continues to raise prices.
The market is also worried that according to the historical experience 3-5 years ago, OTC enterprises of traditional Chinese medicine will have obvious inventory cycles in channels, resulting in periodic fluctuations in the company’s performance. We believe that with the wide implementation of the drug traceability code system in the China Meheco Group Co.Ltd(600056) industry from 2015 to 2016, OTC enterprises of traditional Chinese medicine have a powerful weapon to track the purchase, sales and inventory status of their products in dealer channels and terminal pharmacies, so as to timely grasp the channel inventory information and objectively avoid the performance cycle change of channel inventory reduction and replenishment.
Generally speaking, the main OTC varieties of traditional Chinese medicine have sustained price raising ability due to their strong brand power and high market share, whether they are positioned as flow varieties or high wool varieties by pharmacies. In addition, due to the establishment of the drug traceability code system in the overall pharmaceutical industry, traditional Chinese medicine OTC enterprises have been able to monitor the channel and terminal inventory in time, and the probability of dragging down the company’s performance due to the inventory cycle is also reduced.
It is suggested to pay attention to individual stocks: OTC of precious Chinese patent medicines, such as Jianmin Pharmaceutical Group Co.Ltd(600976) , Beijing Tongrentang Co.Ltd(600085) , Zhangzhou Pientzehuang Pharmaceutical Co.Ltd(600436) , Guangyuyuan Chinese Herbal Medicine Co.Ltd(600771) ; Brand Chinese patent medicine OTC, such as China Resources Sanjiu Medical & Pharmaceutical Co.Ltd(000999) , Henan Lingrui Pharmaceutical Co.Ltd(600285) , Mayinglong Pharmaceutical Group Co.Ltd(600993) , Zhejiang Shouxiangu Pharmaceutical Co.Ltd(603896) , Chongqing Taiji Industry (Group) Co.Ltd(600129) , etc.
The traditional Chinese medicine industry is supported by national policies, the valuation level of the sector is low, the main products have a certain right to raise prices, the growth of relevant companies is determined stably, and the recommended rating is maintained.
Risk warning: the risk that the price rise of some products is less than expected; The risk that the improvement of corporate governance structure is lower than expected; The risk that the implementation of the state’s policy of encouraging the development of traditional Chinese medicine is lower than expected; The risk that the survey sample is too small to reflect the real situation; Focus on the risk that the company’s performance is less than expected.
