In-Depth Analysis of Changchun High-Tech's 2024 Semi-Annual Report!
Changchun High-Tech's stock price has been on a downward spiral since hitting a new high in May 2021, with a cumulative decline of about 85% to date.
This period of a double whammy in the Davis method has gone through three stages of evolution: Phase one: Concerns about the slowdown in revenue growth.
This expectation emerged in the second half of 2021 and was fully realized by the mid-2022 report.
During this period, the stock price was more than halved, and the P/E ratio was reduced to 15-20 times.
Phase two: Concerns about the potential decline in performance.
This expectation was fully realized by the mid-2023 report.
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During this period, the stock price was nearly halved again, and the P/E ratio was reduced to 10-15 times.
Phase three: Concerns about the potential loss of market share.
This expectation was partially realized by the mid-2024 report, with Jin Sai's profits declining by 19.49% and revenue barely increasing by 0.25%.
Currently, the P/E ratio has fallen below 10 times.
Will the stock price be halved again in the future?
Concern, disappointment, despair...
If the performance can continue to grow, as long as the valuation is low enough, there is still a certain sense of security in the investment.
However, if the performance starts to decline, will Changchun High-Tech fall into an endless abyss of "the more you buy, the more expensive it gets"?
On August 16, Changchun High-Tech released the "2024 Semi-Annual Report".
Let's see if it is as bad as the stock price suggests.
(1) Cash flow and balance sheet situation: Changchun High-Tech has maintained a very low debt ratio for many years, currently only 16.89%.
The cash on hand is as high as 6.6 billion yuan, although it has decreased by 1 billion yuan quarter-on-quarter, but the interest-bearing debt is only about 1.5 billion yuan.
Why borrow money when you are so rich?
A detailed look shows that only 450 million yuan in convertible bonds were issued to Jin Lei in 2020, and the rest of the borrowings were made by various subsidiaries (pharmaceutical companies borrowed less, and it is likely the fault of real estate companies).
In addition, Changchun High-Tech's operating cash flow is good.
The first half of the year's sales collection was 106% of the revenue, and the net operating cash flow accounted for 110% of the net profit, which is more than twice the capital expenditure for purchasing fixed assets, and the free cash flow is also very bright.
As a result, Changchun High-Tech's accounts receivable decreased by 400 million yuan quarter-on-quarter in the first half of the year.
However, there are still 3 billion yuan, accounting for 9.4% of total assets and 23% of annual revenue.
This scale is not small, with 87% of the accounts receivable within one year.
However, the more than 1 billion yuan of government arrears that shareholders hate is not in the accounts receivable item, but is placed in "other accounts receivable", and most of the account age is more than 3 years, with almost no bad debt provision.
(2) Non-current asset structure and fixed asset expenditure: Changchun High-Tech's asset structure is relatively healthy overall, but it has been dragged down a bit by real estate companies, diluting the quality of a pharmaceutical and biological company.
Among them, the inventory of 4.7 billion yuan is very large, and most of it is related to real estate development.
The problem is that now that housing prices have fallen sharply, this inventory asset has not been subject to much impairment processing.
Among them, the construction in progress of 3.2 billion yuan is also very large, but there is no need to worry, it is not a real estate development project, it is basically the capacity construction or optimization project of Bai Ke Biological and Jin Sai Pharmaceutical.
Among them, the development expenditure of 1.4 billion yuan has increased by more than 200 million yuan quarter-on-quarter.
This item has increased rapidly in recent years, mainly due to the capitalization of pharmaceutical R&D investment.
(3) Dividend, financing and profit sedimentation situation: Changchun High-Tech's historical financing operations are slightly frequent, regardless of the issuance of convertible bonds, there were two equity financings in 2019 and 2016.
However, in contrast, the historical dividend is really pitiful.
Such a profitable company, the dividend yield has been less than 1% for more than ten years, resulting in Changchun High-Tech's undistributed profits accounting for 52% of the market value.
It is really stingy not to distribute the money!
It was not until 2023 that it knew shame and then bravely increased the dividend yield to 3.7%.
However, the dividend payout ratio is only 40%, and there is still room for improvement.
The main reason for the rapid increase in the dividend yield is that the stock price has come down.
According to the latest stock price, the dividend yield has risen to 5.6%, which is rare in the biopharmaceutical stocks, should you laugh or cry?
(4) Performance growth and profitability: Changchun High-Tech's performance growth curve in previous years was quite beautiful, but the past is just a prelude.
The biggest problem now is the increase in competitors, and the performance growth has slowed down or even declined.
In the first half of 2024, the revenue increased by 7.6% year-on-year, and the profit decreased by 20%.
Among them, Jin Sai's revenue increased by 0.25%, and the profit decreased by 19.49%; Bai Ke Biological's revenue increased by 10.5%, and the net profit increased by 23.54%.
Changchun High-Tech has a clear tendency to fall, and the two growth engines in the first half of the year stopped at the same time, putting great pressure on investors, and the stock price collapsed again on the basis of the previous sharp decline.
Objectively speaking, is this performance very bad?
Not necessarily, there are a lot of companies in the semi-annual report that increase revenue but not profit, and the stock price has not fallen so much.
And as mentioned at the beginning of the article, the expectation of Changchun High-Tech's performance slowdown has been for two or three years, and the valuation should have been digested almost.
However, the sharp decline in profits this time still broke through the market's expectation bottom.
Now Changchun High-Tech is like a taut string.
The management is very cautious, and investors are also very cautious, for fear of something happening.
It is necessary to release this momentum, I guess the future expectation bottom is a sharp decline in revenue, and then there will be a reversal of the poles.
This is what the article title said there is still a pass to go!
(5) Cost control situation: In the first half of the year, Changchun High-Tech's three expenses were poorly controlled, with sales expenses increasing by 9.4%, and the management expense ratio increased by 53.7%, while the financial expenses were positive (interest income is matched with the scale of funds) and slightly decreased year-on-year.
The reason for the excessive increase in management expenses: the official explanation is that after several BU (business units) became independent companies, some of the personnel who were previously attributed to sales are now managers.
Even if it is adjusted back to sales expenses, the increase in sales expenses is also significantly higher than the revenue growth, and it is not much better.
The company has repeatedly stated at investor meetings that the money that should be spent will definitely be spent.
This money that should be spent includes both R&D investment and the expansion of the sales team, so the future expenses will not be good!
Changchun High-Tech's R&D expense ratio is 11.8%, a year-on-year increase of 26%, and it continues to maintain a high growth state.
In the early years, the company's R&D investment was insufficient, and now it is eager to make up for the shortcomings, but it is a bit too much, even if it affects the financial report.
Although high R&D is a typical feature of pharmaceutical companies, the disadvantage of Changchun High-Tech is that the R&D front is stretched very wide, and the span is very large.
This kind of broad-sowing approach is difficult to make investors confident that they can produce blockbuster products!
Changchun High-Tech has four business lines, belonging to four subsidiaries.
I generally only consider the valuation of growth hormone of Jin Sai Pharmaceutical.
I personally do not look good at other business lines (including Bai Ke, which makes vaccines), if they can develop by luck, it is equivalent to earning white!
Unfortunately, fate is unpredictable, and in the first half of the year, it was these marginal business lines that performed well.
(1) Jin Sai Pharmaceutical: mainly engaged in growth hormone.
The first half of the year's revenue was 5.152 billion yuan, an increase of 0.25%; profit was 1.769 billion yuan, a decrease of 19.49%, which was significantly lower than expected.
There have been too many articles on the market analysis of growth hormone, so I won't repeat them.
The core change in the first half of the year was the increase in revenue from powder needles and long-acting needles, and the decline in revenue from water needles.
The market changes are in line with the current economic environment: the rich are not affected, the middle class is retracted, and the low-income group is directly down.
(2) Bai Ke Biological: mainly engaged in vaccines, but the basic situation and business model of domestic vaccine companies are not good.
The first half of the year's revenue was 618 million yuan, an increase of 10.50%; profit was 138 million yuan, an increase of 23.54%, the growth rate has slowed down significantly quarter-on-quarter, and the expectation has collapsed, and the stock was directly limited on the second day after the financial report was announced!
(3) Hua Kang Pharmaceutical: mainly engaged in the production of traditional Chinese medicine products.
The performance has been mediocre for several years, but the first half of the year's revenue was 391 million yuan, an increase of 10.37%; profit was 24 million yuan, an increase of 26.42%, which was a bit beyond expectation.
(4) Gao Xin Real Estate: mainly engaged in real estate development, originally planned to be separated, but the government has no money, so it can only be abandoned.
The first half of the year's revenue was 456 million yuan, an increase of 372.45%; net profit was 33 million yuan, an increase of 533%.
These book data of real estate are meaningless, and there is no need to analyze too much.
There are no highlights in the changes of the top ten shareholders, and several institutions have taken turns.
After the social security funds withdrew at the end of 2022, they have not returned yet, which will be one of the signals of the two-level reversal, so don't take it lightly.
The management has recently increased its holdings by more than ten million yuan, but this money is the equity incentive given by the company after the performance reached the standard in 2023, and the use must be to buy the company's stock, which is not a good news, it can only be said that there is more interest binding.
Jin Lei still has not increased its holdings, which is the most important signal of the two-level reversal.
Always believe in the true gold and silver's optimism, when the stock price has reached this level, if it is really low, capitalists will buy it.
If they don't pay money, it means it's not in place!
The idea of analyzing the valuation of Changchun High-Tech now and then formulating a reasonable investment strategy is very beautiful, but the angle is wrong from the beginning.
From the above picture, it can be seen that Changchun High-Tech's valuation is obviously lower than that of its peers, and even some unqualified competitors have a taste of climbing up the nose.
What's the meaning of such valuation analysis.
Therefore, the future investment strategy of Changchun High-Tech must be thought from the perspective of market expectations.
As I said above: it still has a pass to go!
The future bottom-fishing rhythm must not rush, nor be tempted by the stock price rebound.
It must wait until things become clear before making a decision, such as performance stabilization or reversal, Jin Lei's increase, social security entry, etc., otherwise, the information gap between institutions and retail investors will cut you to the root.