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The "three good students" in school refer to morality, intelligence, and physique, while the "three good students" in A-shares refer to "dividends, profits, and liabilities." Although the names are different, they have many similarities.

Dividends reflect the "morality" of a listed company. A listed company that cannot or is unwilling to pay dividends cannot be considered to have qualified morals. This is why the new rules on reducing holdings set dividends as a hard indicator.

Profit reflects the "intelligence" of a listed company. Learning is the basic requirement for students, and making profits is also the foundation for listed companies. Whether a company's intelligence is up to standard depends on whether it can make profits.

Liabilities reflect the "body" of a listed company. People are afraid of being sick, and companies are afraid of having debts, especially bottomless debts that make companies breathless. A listed company without debt burden is in good health.

In school, "three good students" are always favored by teachers, and even if they make mistakes occasionally, they can get special forgiveness or care.

In the A-share market, listed companies that can achieve the "three good things" are also quite tolerated by investors. Even if the founders and actual controllers cash out a lot, investors have nothing to say.

Zhifei Bio, China's most profitable imported vaccine agent, is a "three-good student" in the A-share market. Its two founders, Jiang Rensheng and Wu Guanjiang, have cashed out a total of about 21 billion yuan, while 100,000 shareholders have nothing to say.

1

There is no way. Zhifei Bio's three indicators of "morality, intelligence and physical fitness" are too good. What reasons can investors find to question its cashing out?

It was listed in 2010, and it has been 14 years since then. Apart from the 1.5 billion raised at the beginning of the IPO, there has been no additional fundraising. On the one hand, it is honest, and on the other hand, it may be that it really has no shortage of money.

The IPO took away 1.5 billion yuan, and how much has been returned over the years? The cumulative dividends are 4.924 billion yuan, more than three times the funds raised. Even if most of the money taken by the boss is deducted, the remaining dividends are enough to cover the investment of ordinary shareholders.

What this means is that if you bought Zhifei Bio in 2010 and held it until now, you would have made back your capital in dividends alone. You have earned as much as the market value of your shares.

The prerequisite for such a generous dividend is naturally to make a lot of profits. Zhifei Bio may have been just an ordinary biopharmaceutical company before 2017, but it became "sainted" after it clung to the multinational vaccine giant Merck in 2017.

As the exclusive agent of Merck vaccines, it has made a total profit of 33.4 billion in the past seven years, an average of 4.7 billion per year. This earning ability is beyond the reach of any other biopharmaceutical company in the A-share market.

Especially in recent years, with the growing demand for HPV (cervical cancer) vaccines in China, the HPV nine-valent vaccine represented by Zhifei Bio has become the only one in the market, earning 10.2 billion in 2021, 7.5 billion in 2022, and 8 billion in 2023, taking more than half of the Chinese HPV vaccine market.

If it can make money, its debt naturally cannot be high. Otherwise, it would not have stopped issuing additional financing for more than ten years. As of the first quarter of 2024, its debt-to-asset ratio was 39%, which is completely burden-free.

In 2023, the company achieved a revenue of 52.9 billion yuan, but incurred financial expenses of only over 40 million yuan, which shows that there is very little interest-bearing debt and no debt repayment pressure at all.

2

Of course, even the "three good students" also have shortcomings. The shortcoming of Zhifei Bio is that it is too obsessed with being an agent, so much so that it almost forgets that it is also a biological product company and it has to have something of its own.

For many years, Zhifei Bio's R&D investment has almost been at the bottom of the entire biopharmaceutical industry. Taking 2023 as an example, Zhifei Bio's R&D expenses accounted for less than 2% of its revenue.

With little investment, the harvest will naturally not be much. In 2023, the revenue of Zhifei Bio's self-developed products will only be 1 billion, accounting for less than 2% of the total revenue.

Of course, the agency business is really profitable, otherwise Zhifei Bio would not be so happy with it, but if you carefully compare the financial data of recent years, you will find that the net profit margin of vaccine agency is declining.

Domestic HPV vaccines have begun to rise. Wantai Biological's HPV bivalent vaccine will be on the market in 2020, and Watson Biological's bivalent vaccine will be on the market in 2022, becoming a competitor to imported vaccines.

Although its defense rate is not as high as that of the nine-valent vaccine, its price is low. For example, Merck's nine-valent HPV vaccine costs more than 1,300 yuan per shot, and three shots cost nearly 4,000 yuan, while the price of a single shot of the domestic two-valent vaccine is even as low as less than 120 yuan.

The official propaganda is that the protection rate of the bivalent vaccine is 70%, and the protection rate of the nine-valent vaccine is 90%. The nine-valent vaccine is definitely better than the bivalent vaccine, but faced with a price difference of more than 10 times, domestic vaccines can always take away a certain share.

If Merck wants to maintain its market share, it will also make appropriate adjustments to prices, which will to some extent squeeze the profit margin of Zhifei Bio as the agent.

A more intuitive comparison is that in 2018, Zhifei Bio's gross profit margin was nearly 55%, while in 2023 it was less than 27%, a complete halving.

In fact, the domestic HPV vaccine is not the biggest threat to Merck, which is represented by Zhifei Bio. Several domestic HPV nine-valent vaccines have entered the third phase of clinical trials, which means that Zhifei Bio’s days of sleeping alone in a wide bed may not be long.

3

In fact, Zhifei Bio started out as an agent, and it probably developed some independent products during the process.

Jiang Rensheng, a core figure of Zhifei Bio, originally worked at the Guangxi Epidemic Prevention Station and was once promoted to the position of deputy station director. He is very familiar with the vaccine business and believes that there is great potential in the Chinese vaccine market.

In 1999, at the invitation of a vaccine company in Chengdu, Jiang Rensheng left the epidemic prevention station and started selling vaccines. He had worked in the system for many years and was naturally quite familiar with the resource paths, so selling vaccines was no problem.

After working for two years, he felt that it was too easy to make money from vaccines, so he decided to start his own company. There happened to be a biological vaccine company for sale in Chongqing, and everything was ready. Jiang Rensheng teamed up with his good friends Wu Guanjiang and Liu Junhui to buy the company, which is the predecessor of the current Zhifei Bio.

After the company was bought, differences arose over the development path. Wu Guanjiang insisted on making quick money through trade, while Liu Junhui insisted on steady and cautious development of independent research, which was a bit like Lenovo's original "technology and trade dispute".

Jiang Rensheng held the largest number of shares and finally sided with Wu Guanjiang's proposal and embarked on the path of agency business. Liu Junhui became discouraged and started his own business. The aforementioned Watson Biopharmaceuticals, which developed its own bivalent HPV vaccine, is Liu Junhui's masterpiece.

Wu Guanjiang advocates making quick money and running fast. Soon after Zhifei Bio went public, he began to frantically reduce his holdings and cash out. At the beginning of the IPO, Wu Guanjiang held 26% of the shares, but now he only has 0.74%. According to statistics, he has cashed out about 13 billion.

Of course, Wu Guanjiang also had his own reasons for running away. After all, Zhifei Bio was Jiang Rensheng's world. Jiang Rensheng's son Jiang Lingfeng joined the company very early. The business was passed down from father to son, and if he didn't leave, his nephew would have to manage his uncle in the future.

4

As for Jiang Rensheng, although he personally cashed out about 8 billion yuan at a high point, he and his son Jiang Lingfeng now hold a combined shareholding of more than 57%, and are still the absolute controlling shareholder of Zhifei Bio.

Jiang Rensheng himself must be aware of the impact that domestic vaccines will have on Zhifei Bio's agency business, but he certainly still wants to take a chance and win the favor of Chinese consumers for imported vaccines.

This is a realistic logic. The historical deeds of domestic vaccine companies such as Changsheng Bio-technology and Sinovac Biotech are still vivid in our minds. The strength and credibility of domestic vaccines still need more domestic companies to strengthen them.

Moreover, even if domestic products take away market share, they can never completely replace imports. Imported vaccines will always have their own living space. The most that Zhifei Bio can do is to change its wide bed into a narrow bed, but at least it is still a bed to sleep on.

In addition, by the time the domestic HPV vaccine is on the market, the domestic population may have been almost fully vaccinated, and the majority of them have been taken, so there is nothing wrong with sharing the rest with everyone.

The most crucial point is that Merck is not an agent. Perhaps in a few years, new vaccines will be developed and it will become a leader again, and Zhifei Bio will have the opportunity to monopolize the wide bed area again.

In fact, no matter how far China's vaccine technology develops, mutual penetration between us and the world's superpowers in the market will always exist. As of now, multinational giants tend to hand over sales and promotion business to local companies, and imported vaccines will only go through agents. Zhifei Bio's agency business will also always exist.

Of course, you can't let your own private land go to waste. You have to continue to increase your investment. The agency business will always exist, but what if one day you can't get along?