Conba Reports H1 Net Profit of RMB 385 Million, Up 25.34% Year-on-Year

VCBeat (WeChat ID: vcbeat), July 12 – Pharmaceutical listed company Conba released its semi-annual performance preview last night. During the reporting period, the company recorded revenue of RMB 2.34 billion, a year-on-year decrease of 23.27%; net profit attributable to shareholders of the listed company amounted to RMB 385 million, representing a year-on-year increase of 25.34%.

Revenue Declined, Net Profit Increased. The reason is that Conba disposed of its equity stake in the pharmaceutical e-commerce platform Zhencheng Pharmaceutical Online Co., Ltd. at the end of last year, resulting in Zhencheng Pharmaceutical's revenue no longer being included in the consolidated financial statements.

Conba stated that, excluding the impact of Zhencheng Pharmaceutical, the company’s operating revenue for the current period increased by 21.34% year-on-year compared to the same period last year.

As mentioned above, after excluding the impact on Zhencheng Pharmaceutical’s performance, Conba’s revenue in the first half of this year still increased by 21.4% compared to the same period last year. In its preliminary earnings announcement, Conba also explained the reasons behind this growth.

Conba stated that during the reporting period, the Company actively responded to policy and market changes in the pharmaceutical industry. It initiated the “Major Brands and Key Products” initiative as a strategic lever to leverage Conba’s brand and product portfolio advantages, thereby promoting and accelerating endogenous growth within the Company, which yielded favorable results.

In the first half of the year, the sales revenue of Conba’s key products achieved robust overall growth. Although the sales volume and revenue of Danshen Chuanxiongqin Injection, one of the company’s flagship products, declined by 9% and 2% year-on-year respectively due to policy changes such as medical insurance cost containment measures and the implementation of the “Two-Invoice System” in the pharmaceutical distribution sector, the sales revenues of several key products—including the “Conba” Changyanning series, “Jindi” Compound Houttuynia Cordata Mixture, “Zhenshiming” series products, “Conba” Panax Notoginseng Medicinal Wine, ginkgo biloba extracts, and amikacin sulfate—each increased by more than 50% year-on-year.

The transfer and disposal of Zhencheng Pharmaceutical is regarded by the industry as an indication that Conba’s foray into pharmaceutical e-commerce has encountered obstacles. Zhencheng Pharmaceutical is an integrated pharmaceutical company combining manufacturing and distribution, operating the Zhencheng Pharmaceutical Online B2B e-commerce platform, which provides procurement services for medicines, health supplements, herbal decoction pieces, and other products to clinics and retail pharmacies.

Previously, in December 2014, Conba acquired a 30.81% equity stake in Zhencheng Pharmaceutical for RMB 270 million in cash. Six months later, it invested an additional RMB 233 million to acquire another 26.44% equity stake. Through these two transactions, Conba made a total investment of RMB 503 million and obtained a 57.25% equity stake in Zhencheng Pharmaceutical.

Following its acquisition of a controlling stake in Zhencheng Pharmaceutical, Conba aims to leverage capital ties to further deepen, accelerate, and expand cooperation between the two parties in areas such as resource integration and business development. This move is intended to expedite Conba’s entry into the pharmaceutical e-commerce sector, broaden marketing channels, and enhance its industrial chain layout.

At the time, Conba stated that it would advance the integration of internal resources to provide abundant pharmaceutical product resources for Zhencheng Medicine’s accelerated rollout of its “Pharma-Link 50,000” initiative. This would drive the market launch and sales volume growth of the company’s previously unlisted or low-volume products, leverage Conba’s advantage in rich pharmaceutical resources, and enhance the company’s overall profitability. The aim is to build an open pharmaceutical trading platform to serve more pharmaceutical enterprises and consumers.

Based on the financial data at that time, Zhencheng Pharmaceutical’s revenue for 2012 had already reached RMB 1.54 billion, with a total profit of RMB 30.36 million. In comparison, Conba’s financial data for the same period showed operating revenue of RMB 2.734 billion and net profit of RMB 296 million. Acquiring assets equivalent to nearly half of its parent company’s revenue for RMB 500 million made this transaction appear highly favorable for Conba at the time.

However, Conba’s due diligence on Zhencheng Pharmaceutical also uncovered numerous potential issues. In addition to external factors such as policy risks, drug safety, and market competition, Zhencheng Pharmaceutical itself faced certain operational vulnerabilities, including a net accounts receivable balance as high as RMB 500 million and issues related to high turnover rates. Furthermore, there were integration risks between Zhencheng Pharmaceutical and Conba in areas such as talent, corporate culture, strategy, and marketing.

In 2015 and 2016, Conba’s projected net profits for Zhencheng Pharmaceutical were RMB 53 million and RMB 82 million, respectively. However, Zhencheng Pharmaceutical achieved only 51.92% of its 2015 profit target, and incurred a loss of RMB 8.5365 million in 2016, resulting in a negative performance rate.

Zhencheng Pharmaceutical's revenue failed to meet targets because the pharmaceutical B2B e-commerce sector had not yet developed favorable market conditions at that time,TerminalLow medication demand, as well as competition from peers.

At the end of last year, Conba announced that it would transfer all of its shares in Zhencheng Pharmaceutical to Zhejiang Bokang Pharmaceutical Investment Co., Ltd., a holding company under Hu Jiqiang, the actual controller of Conba. The transaction consideration was RMB 345 million, which is RMB 150 million lower than the previous total investment amount. Conba stated that this significant related-party transaction would result in an investment loss of approximately RMB 40 million for the listed company.

The transfer of the listed company’s assets to the actual controller, rather than an external sale, also suggests to some extent that neither the actual controller nor the listed entity is entirely bearish on the pharmaceutical B2B e-commerce business; the divestiture may represent a compromise driven by considerations of the listed company’s financial performance.