China Resources Related's billion-dollar traditional Chinese medicine team can no longer be hidden

China Resources Related welcomes its fifth traditional Chinese medicine listed company.

On August 5th, Tasly Pharmaceutical (600535.SH) announced that China Resources Sanjiu (000999.SZ) plans to acquire its controlling shareholder Tasly Biopharmaceutical Industry Group Co., Ltd. (referred to as "Tasly Group") and 28% of its shares held by concerted parties for 6.211 billion yuan.

After the completion of this transaction, Tasly's controlling shareholder will change from Tasly Group to China Resources Sanjiu, and the actual controller will change from Yan Xijun and others to China Resources.

The market has shown a positive attitude towards this transaction. On August 5th, Tasly and China Resources Sanjiu saw increases of 5.68% and 0.71% respectively at the close.

According to incomplete statistics from Wind, currently, the traditional Chinese medicine listed companies under China Resources Related include Jiangzhong Pharmaceutical (600750.SH), China Resources Sanjiu (000999.SZ), Dong-E-E-Jiao (000423.SZ), and Kunyao Group (600422.SH), totaling 4 companies.

With the addition of Tasly, the number of traditional Chinese medicine listed companies under China Resources Related will reach 5, and as of the close on August 5th, the total market value of these 5 listed companies reached 132.793 billion yuan.

The biggest boost for China Resources Related's traditional Chinese medicine sector from this merger and acquisition is the filling of the gap in its exclusive varieties - currently, Tasly holds multiple exclusive varieties of traditional Chinese medicine such as Compound Danshen Dripping Pills and Yangxue Qingnao Granules (Pills).

However, Tasly's retail chain business competes with China Resources Pharmaceutical's (3320.HK) retail chain business. Whether China Resources Sanjiu will solve this issue by divesting Tasly's retail chain business remains to be seen.

Increasing Investment in Traditional Chinese Medicine

Under the warm policy environment of mergers and reorganizations, the trend of "A controlling A" in the pharmaceutical industry is on the rise.

Earlier this year, Mindray Medical (300760.SZ) used 6.652 billion yuan of its own funds to acquire 21.12% equity of Huatai Medical (688617.SH), becoming the largest shareholder and controlling shareholder of Huatai Medical.

Now, merger and acquisition transactions are occurring frequently in the traditional Chinese medicine industry.

This time, China Resources Sanjiu (000999.SZ) plans to acquire 4.18 billion shares of Tasly held by Tasly Group and concerted parties for 6.211 billion yuan, accounting for 28% of Tasly's shares.

After the transaction is completed, Tasly's controlling shareholder and actual controller will change to China Resources Sanjiu and China Resources, respectively.

This transaction is in line with the market price.

In terms of price, China Resources Sanjiu's acquisition price this time is 14.85 yuan per share, which is basically the same as the closing price of 14.88 yuan per share on August 5th; in terms of valuation, based on the reference of this acquisition price and Tasly's estimated non-GAAP earnings per share of 0.79 yuan in 2023, the price-earnings ratio of this acquisition of Tasly is 18.79 times, slightly lower than the industry average - Wind data shows that as of the close on August 5th, the price-earnings ratio of the CSI Traditional Chinese Medicine Index was 22.7 times.

This is the largest acquisition in the history of China Resources Sanjiu.

In 2022, China Resources Sanjiu had previously acquired the controlling rights of traditional Chinese medicine enterprise Kunyao Group for 2.902 billion yuan With the acquisition of Tianjin Tianshi by China Resources Sanjiu, the health sector of China Resources has been further expanded.

According to incomplete statistics from TradeWind01, including Tianjin Tianshi, China Resources Group currently has a total of 9 listed companies in the health sector under its umbrella, including China Resources Pharmaceutical, China Resources Double-Crane (600062.SH), Jiangzhong Pharmaceutical, Boya Bio-Pharmaceutical (300294.SZ), China Resources Sanjiu, China Resources Health, Dong-E-E-Jiao, and Kunyao Group. These companies are involved in traditional Chinese medicine, hospitals, chemical medicine, blood products, retail pharmacies, distribution, etc., covering almost the entire upstream and downstream industry chain of the pharmaceutical industry.

Traditional Chinese medicine is a key focus area for China Resources.

According to incomplete statistics from TradeWind01, China Resources has already invested in 5 listed traditional Chinese medicine companies, namely Tianjin Tianshi, Jiangzhong Pharmaceutical, China Resources Sanjiu, Dong-E-E-Jiao, and Kunyao Group.

As of the closing market value on August 5th, the total market value of these 5 companies has reached 132.793 billion yuan.

Moreover, TradeWind01 also noted that with the completion of this acquisition, China Resources has secured 3 spots in the top 10 A-share traditional Chinese medicine companies by market value, namely China Resources Sanjiu, Dong-E-E-Jiao, and Tianjin Tianshi, ranking third, sixth, and ninth respectively.

An insider close to China Resources Group revealed to TradeWind01 that the group plans to continue seeking merger and acquisition targets in the health sector to expand its business scope in the future.

Looking at the industry as a whole, the proportion of state-owned assets in listed traditional Chinese medicine companies is also steadily increasing.

On one hand, with this transaction completed, the number of state-owned companies in the top 10 A-share traditional Chinese medicine companies will reach 6; on the other hand, based on a sample of 50 Chinese medicine companies from the China Securities Index, the number of listed traditional Chinese medicine companies controlled by the State-owned Assets Supervision and Administration Commission has reached 18 (including Tianjin Tianshi), accounting for over 30%; meanwhile, the number of listed companies controlled by natural persons or private capital is around 26, accounting for about 50%.

Or Divest Retail Business

After moving away from stock speculation, Tianjin Tianshi's performance has been relatively stable.

In 2023, Tianjin Tianshi's revenue was 8.674 billion yuan, a year-on-year increase of 0.42%; however, during the same period, its net profit attributable to shareholders reached as high as 1.071 billion yuan, achieving a significant turnaround from -0.275 billion yuan in 2022.

The main reason is that Tianjin Tianshi has significantly reduced its investment in the secondary market, and the overall loss scale has continued to shrink. The fair value change income in 2023 was -0.172 billion yuan, a decrease of 84.42% compared to 2022.

Currently, Tianjin Tianshi's business is mainly divided into two major parts: pharmaceutical industry and commercial sector, with the former being the main source of income, generating 5.971 billion yuan in revenue in 2023, accounting for over 60% This time, China Resources Sanjiu's acquisition of Tian Shilai mainly demonstrates synergy in the following two aspects.

First, strengthening the layout of exclusive varieties of traditional Chinese medicine.

Currently, Tian Shilai owns multiple exclusive varieties such as Compound Danshen Dripping Pills, Nourishing Blood and Clearing Brain Granules (Pills), and Qishe Yiqi Dripping Pills, all of which hold certain positions in the market.

According to IQVIA China Hospital Pharmaceutical Statistics, in the market for traditional Chinese medicine used for ischemic heart disease, the market share ranking of Compound Danshen Dripping Pills in 2023 is ranked first nationwide.

Compared to Tian Shilai, the traditional Chinese medicine companies in the China Resources Group currently lack exclusive varieties.

Although Kunyao Group is also a traditional Chinese medicine company, it does not have exclusive varieties; China Resources Sanjiu and Jiangzhong Pharmaceutical focus on OTC drugs; Dong-E-E-Jiao focuses on the Chinese tonic market.

In addition to traditional Chinese medicine, Tian Shilai's future performance elasticity also lies in innovative drugs.

Currently, Tian Shilai has laid out in the field of anti-tumor with pipeline products such as PARP inhibitor TSL-1502 (Class 1 innovative drug), fully human anti-EGFR monoclonal antibody Amemolumab combined with PD-1 monoclonal antibody, PD-L1/VEGF bispecific antibody, CD44/CD133 bispecific CAR-T drugs, etc.

Second, strengthening the layout in the terminal market.

Tian Shilai's pharmaceutical commercial sector has 29 regions, 562 offices, and operates chain pharmacies in Liaoning Province, Tianjin, Shandong Province, and other regions, with a revenue of 1.215 billion yuan in 2023.

However, this business competes with China Resources Pharmaceutical's retail business; Tian Shilai and China Resources Sanjiu also overlap in the field of Levocarnitine tablets.

China Resources Sanjiu has committed to resolving competitive issues in the same industry within 5 years after the completion of the transaction through business integration and other means.

Currently, the market expects that China Resources Sanjiu may potentially divest Tian Shilai's pharmaceutical retail business to China Resources Pharmaceutical, which mainly engages in drug distribution, retail, and other businesses, with a total of 790 self-operated retail pharmacies by the end of 2023.

With the advantages of the China Resources Group in marketing and other aspects, the market is still closely watching whether Tian Shilai will usher in more possibilities