Zhejiang ShouXianGu Pharmaceutical Co., Ltd. (hereinafter referred to as “ShouXianGu”) reported its earnings in 2019 on 2 April. According to the report, the company, during the reporting period, generated RMB 547 million Yuan in revenue and made a net profit attributable to shareholders of listed companies of RMB 124 million Yuan, up 6.9% and 15.09% respectively over the last period.

For its steady increase in performance, ShouXianGu said the following measures may provide an explanation: the company has reinforced reform and innovation of market operation mechanism, implemented stricter assessment of target-oriented responsibility system, adhered to the development mode of “Great Doctors, Famous Medicine and Well-known Stores”, deepened the resource integration, tapped the market potential, and developed new markets and new retail modes. Now it experiences a steady improvement in marketing.

As of 3 April, ShouXianGu closed at RMB 27.96 Yuan per share, rising 1.67%. 

Continuously strength the main business of ganoderma lucidum

According to the public data, ShouXianGu is mainly in the business of highly processed products in connection with ganoderma lucidum and dendrobium officinale, chiefly manufacturing two kinds of products including Chinese herbal slices and health food. Both Sporoderm-broken Ganoderma Lucidum Spore Powder Granules and Dendrobium Officinale Granules branded by ShouXianGu are its featured products.

According to the 2019 Annual Report, 85% revenue of ShouXianGu came from its products of ganoderma lucidum and dendrobium officinale, which are amongst rare Chinese herbal medicine varieties. The abovementioned two featured products generated respectively RMB 377 million Yuan and RMB 81.0547 million Yuan in revenue in the reporting period. The company further said in an interview with our reporter that it would continue to increase its efforts in ganoderma lucidum.

As its important product, ganoderma lucidum spore powder product contributes the most to the company’s gross profit. From 2017 to 2019, such product’s gross profit rate was all above 90%, specifically 94.27%, 92.9% and 90.69%. Based on this, ShouXianGu’s gross profit ratio in the past three years reached 86.23%, 85.91% and 84.38%, respectively.

As its ganoderma lucidum product accounts for a large proportion of revenue, ShouXianGu is always questioned for its single product structure. Regarding this issue, the company said in the annual report it would be committed to creating a product structure with ganoderma lucidum spore powder TCM decoction and health products as the peak, with dendrobium officinale products and saffro products as two wings and with other products as supplements.  

It is also worth mentioning that in the 2020 Business Plan, ShouXianGu said that it would try a new business model of making TCM snack food, promote the research and development of new retail food and develop series of good with ganoderma lucidum, dendrobium officinale and saffro as raw materials to enhance the company’s competitiveness.

Attach importance to the product quality and increase the investment in research & development

As people are attaching increasingly higher importance to health preservation in recent years, the health product market continues to expand in size. As a result, the development of TCM for healthcare has also been given a lot of attention. Now, there are a great many relevant companies in China, which are represented by Tong Ren Tang, Dong’e Ejiao, New Era Health, etc. Among them, Tong Ren Tang has got 107 TCM for healthcare products registered at present, making it a leader in this field.

As such companies continue to rise, relevant oversight by policies is also strengthened, which is mainly manifested in the product promotion and product quality. In the aspect of product quality, the Chinese Pharmacopoeia Commission previously published 15 documents including Guidelines for Harmful Residue Limit in TCM, in which it is stipulated that the content of heavy metals and hazardous elements (lead, cadmium, arsenic, mercury and copper) in TCM raw materials (commonly known as crude slices) should be checked comprehensively. According to information, 2020 Pharmacopoeia of the People’s Republic of China is under preparation. This new edition sorts out such problems as lack of processing procedures and inadequate quality control of 823 crude slices in the 2015 Edition, and establishes standards for testing heavy metals, hazardous elements, pesticide residues and fungaltoxin to improve the safety of TCM.

Obviously, ShouXianGu is aware of the industry’s improving quality requirements. Its Chairman LI Mingyan introduced before to the reporter of International Finance News that ShouXianGu has set up a product quality control system effectively covering the whole process of production by selecting improved varieties, establishing pollution-free planting base, adopting the wild-imitated organic cultivation mode, and utilizing advanced TCM processing technology and product identity traceability system. The “third-generation sporoderm-removal technology for ganoderma lucidum spore powder” independently researched and developed by the company separates the spore wall from ganoderma lucidum, thereby avoiding the heavy metal pollution and material oxidation and improving product safety and efficacy.

Zheshang Securities analyzed and pointed out that ShouXianGu is a one of the few TCM research & development companies. With the constant improvement of TCM quality standards, Chinese herbal slice enterprises boasting a full industry chain will possess a more apparent competitive advantage in the future as they are more convenient and efficient in quality control.

With the purpose of ensuring product safety and facilitating product development, ShouXianGu has been constantly increasing its investment in research and development in recent years. Its expenses in this field reached RMB 17.8096 million Yuan, RMB 20.9693 million Yuan and RMB 33.6669 million Yuan respectively from 2016 to 2018. In 2019, its R&D expenses even reached RMB 39.4195 million Yuan, accounting for 7.21% of the total revenue, higher than 1.82% and 6.96% disclosed by Tong Ren Tang and Dong’e Ejiao in their 2019 annual reports.

Make repeated donations in the outbreak

As the epidemic continues to spread, Zhejiang Association for Quality and Zhejiang Province Association of Chinese Integrative Medicine have jointly donated preventive TCM products to Chinese and overseas Chinese in European countries with COVID-19 outbreaks such as Italy, Germany, the Netherlands, the Czech Republic, and Poland. As a well-known pharmaceutical company in Zhejiang Province, ShouXianGu made a one-time donation of 10,800 ganoderma lucidum spore powder products, which are valued at more than RMB 500,000 Yuan.

Moreover, since the outbreak of the epidemic, the company has successively donated over 20 batches of sporoderm-broken ganoderma lucidum spore powder, sugarless dendrobium officinale granules and other immunity-enhancing health products with a total value of more than RMB 8 million Yuan to all the members of the first and second emergency medical teams from Zhejiang to help with the treatment of COVID-19 in Hubei province, designated hospitals for epidemic prevention and control including the First Affiliated Hospital, Zhejiang University School of Medicine and Xixi Hospital of Hangzhou, amongst others, and neighborhoods, communities, police and journalists at the frontline of prevention and control. Besides, it has also made repeated donations of masks, medical alcohol and other products to support domestic compatriots and overseas Chinese.