Dong-E-E-Jiao Reports 2016 Net Profit of RMB 1.852 Billion; Product Prices Surge 54-Fold Over a Decade

VCBeat (WeChat: vcbeat) reported on March 10.Dong-E-E-Jiao (000423.SZ) released its 2016 annual financial report today, reporting revenue of RMB 6.317 billion, a year-on-year increase of 14%; net profit reached RMB 1.852 billion, also up 14% year on year.

Dong-E-E-Jiao is China’s largest manufacturer of donkey-hide gelatin (Ejiao). Its product portfolio includes Dong-E-E-Jiao, Compound Ejiao Oral Liquid, and Taohuaji Ejiao Cake, among others, and it has long maintained its position as the top seller in blood-nourishing health supplements. In recent years, Dong-E-E-Jiao has actively sought to penetrate both upstream and downstream segments of the Ejiao industry chain and pursue diversification, establishing production and consumer experience initiatives such as demonstration donkey-breeding farms, wellness-focused dining establishments, and product marketing centers.

VCBeat (WeChat ID: vcbeat) reviewed Dong-E-E-Jiao’s annual report and found that in 2016, the company’s operating revenue reached RMB 6.317 billion, a year-on-year increase of 15.92%; net profit attributable to shareholders of the listed company amounted to RMB 1.852 billion, up 14% year on year; basic earnings per share stood at RMB 2.8324; and the weighted average return on equity was 24.1%.

Notably, Dong-E-E-Jiao’s net profit has remained above RMB 1 billion for five consecutive years, with a compound annual growth rate (CAGR) exceeding 10%.

Data source: Dong-E-E-Jiao Annual Report

Dong-E-E-Jiao stated that it remains committed to its strategic goal of transforming donkey-hide gelatin from a niche category into the leading brand in the nutritional and wellness sector. The company has proposed the concept of “raising donkeys as medicinal resources” and implemented a “live donkey circular development” strategy. By adopting a “government + leading enterprise + bank + base + cooperative + farmer” model, it has established 20 standardized demonstration bases for medicinal donkey breeding in regions such as Bairin Left Banner and Aohan Banner in Inner Mongolia. Additionally, it has laid out two million-head breeding bases in Liaocheng and the eastern Inner Mongolia–western Liaoning region, and set up 100 poverty-alleviation donkey farms in Liaocheng City. These initiatives aim to secure donkey resources at the source and control key upstream segments of the industry chain.

In terms of revenue structure, the Ejiao series products are the primary source of revenue for Dong-E-E-Jiao, generating RMB 5.37 billion during the reporting period, accounting for 85.02% of total revenue. Pharmaceutical trading and other businesses accounted for 4.21% and 10.59%, respectively.

According to the annual report, the gross profit margin of the Ejiao product series reached 74.11%, representing a year-on-year increase of 1.47%.

Corresponding to the high revenue and net profit, the ejiao product series has been frequently embroiled in “price hike controversies.” Just before the annual report was disclosed, pharmaceutical retail outlets reported new price increases for ejiao, with the price of 250g Dong-E-E-Jiao potentially adjusted to RMB 1,350, representing a 36.44% increase from November 2016. Ten years ago, the price of similar products was only RMB 25, meaning this latest adjustment marks a 54-fold increase.

VCBeat confirmed via the official Dong-E-E-Jiao online store that the price of red-label donkey-hide gelatin has indeed risen to 1,350 yuan, while other e-commerce platforms and some offline channels have not yet implemented the price increase.

A head of a chain pharmacy in Chongqing told VCBeat that since he took charge of ejiao procurement, Dong-E-E-Jiao has raised prices rapidly since 2010, with three price hikes that year totaling a 35% increase; cumulative price increases exceeded 100% in 2011 and 2012. Price hikes slowed in 2013 and 2014, and the most recent increase occurred in November 2016, when the retail prices of Dong-E-E-Jiao, Compound E-Jiao Jiang, and Taohuaji Cake rose by approximately 20%.

Industry insiders believe that the price increase of Dong-E-E-Jiao is attributed to two factors: rising production costs and adjustments to the company's marketing strategy.

Qin Yufeng, President of Dong-E-E-Jiao, once stated that around the year 2000, each piece ofDonkey hide prices were once just over 20 yuan, but now stand at around 3,000 yuan., to this end, Dong-E-E-Jiao has established its own breeding base.

However, the price hikes for Dong-E-E-Jiao are by no means driven solely by rising costs. According to the aforementioned chain pharmacy representative, Dong-E-E-Jiao has significantly increased its marketing investments in recent years, expanded its frontline sales team, frequently conducts in-store promotions highlighting the nutritional and tonic benefits of Ejiao (donkey-hide gelatin), runs extensive advertising campaigns across multiple media channels, and offers monthly promotional discounts and incentives targeted at end consumers.

“These all incur certain costs, which will ultimately be passed on to the products,” he stated.

However, following the price hikes, Dong-E-E-Jiao also faced challenges in sales, a fact corroborated by its annual report data. During the reporting period, inventory amounted to RMB 3.014 billion, accounting for 30.29% of total assets, compared to RMB 1.725 billion and 20.04% at the end of 2015. Dong-E-E-Jiao attributed this increase primarily to higher reserves of production raw materials and other inputs.

Based on a 150-fold increase in the price of donkey hide, there is still justification for raising the price of Ejiao. Qin Yufeng has also stated on multiple occasions that Dong-E-E-Jiao is a national treasure of nutritional supplements, and its pricing should return to the standards of the 1920s, ranging from RMB 2,500 to 3,000 per 250 grams.